Prosecuting Ip Crimes Manual 2013

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Prosecuting
Intellectual
Property Crimes
H. Marshall Jarrett
Director, EOUSA

Fourth Edition

Cameron G. Chandler
Director, OLE

OLE
Litigation
Series
Ed Hagen
Assistant Director,
OLE
Andrea Sharrin
Deputy Chief for
Intellectual Property
CCIPS
Criminal Division

Published by
Office of Legal Education
Executive Office for
United States Attorneys

The contents of this book provide internal suggestions to
Department of Justice attorneys. Nothing in it is intended
to create any substantive or procedural rights, privileges, or
benefits enforceable in any administrative, civil, or criminal
matter by any prospective or actual witnesses or parties. See
United States v. Caceres, 440 U.S. 741 (1979).

Table of Contents
Preface and Acknowledgements....................................................................xi
I. Intellectual Property—An Introduction............................................. 1
A. Why Is Intellectual Property Enforcement Important?.................................. 1
B. What Is Intellectual Property?.............................................................................. 6
1. Copyright........................................................................................................... 6
2. Trademarks and Service Marks..................................................................... 6
3. Patents................................................................................................................. 7
4. Trade Secrets...................................................................................................... 8

II. Criminal Copyright Infringement—
17 U.S.C. § 506 and 18 U.S.C. § 2319.................................................. 9
A. Overview................................................................................................................. 10
1. What Copyright Law Protects.................................................................... 10
2. Legal Basis for Copyright and Related Laws........................................... 11
3. Relevance of Civil Cases to Criminal Prosecutions................................ 11
4. Federal Preemption........................................................................................ 12
5. When Copyright Protection Begins and Ends........................................ 13
6. The Rights Protected by Copyright........................................................... 14
7. When Infringement Is Criminal................................................................. 15
B. Elements.................................................................................................................. 16
1. Existence of a Copyright.............................................................................. 18
2. The Defendant Acted “Willfully”............................................................... 26
3. Infringement of the Copyright................................................................... 33
4. Additional Element for Enhanced Sentence: Purpose of
Commercial Advantage or Private Financial Gain................................. 55
5. Misdemeanor Copyright Infringement..................................................... 59
C. Defenses................................................................................................................... 60
1. Statute of Limitations: 5 years..................................................................... 60
2. Jurisdiction....................................................................................................... 61
3. Venue................................................................................................................. 63
4. The First Sale Doctrine—17 U.S.C. § 109.............................................. 63
5. Fair Use............................................................................................................. 69
6. “Archival Exception” for Computer Software—17 U.S.C. § 117...... 74
iii

D. Emerging and Special Issues............................................................................... 76
1. Internet Streaming......................................................................................... 76
2. Cyberlockers and Linking Sites................................................................... 78
E. Penalties................................................................................................................... 80
1. Statutory Penalties.......................................................................................... 80
2. Sentencing Guidelines................................................................................... 80
F. Other Charges to Consider................................................................................. 81

III. Trafficking In Counterfeit Trademarks, Service Marks,
and Certification Marks—18 U.S.C. § 2320.................................. 89
A. Introduction........................................................................................................... 89
1. Overview.......................................................................................................... 89
2. Why Criminal Law Protects Trademarks, Service Marks,
and Certification Marks................................................................................ 92
B. Elements.................................................................................................................. 94
1. The Trademark Counterfeiting Crime in General.................................. 94
2. Relevance of Civil Trademark Law in Criminal
Counterfeiting Cases..................................................................................... 96
3. Intentionally Trafficked in Goods or Services (or Labels,
Documentation, or Packaging for Goods or Services).......................... 97
4. The Defendant Used a “Counterfeit Mark”:
Definition of a Counterfeit Mark............................................................104
5. The Defendant Used the Counterfeit Mark “Knowingly”.................121
6. Trafficking in Counterfeit Military Goods or Services........................126
7. Trafficking in Counterfeit Drugs..............................................................128
8. Venue...............................................................................................................129
C. Defenses.................................................................................................................130
1. Authorized-Use Defense: Overrun Goods.............................................130
2. Authorized-Use Defense: Gray Market Goods.....................................133
3. Repackaging Genuine Goods....................................................................134
4. Lanham Act Defenses..................................................................................137
5. Statute of Limitations..................................................................................138
6. Vagueness Challenges..................................................................................139
D. Special Issues.........................................................................................................140
1. High-Quality and Low-Quality Counterfeits.......................................140
2. Counterfeit Goods with Genuine Trademarks......................................141
3. Selling Fakes While Admitting That They Are Fakes..........................141

iv

4. Selling Another’s Trademarked Goods As One’s Own
(Reverse Passing-Off)...................................................................................141
5. Mark-Holder’s Failure to Use Symbol.................................................142
6. Storage Costs and Destruction..................................................................142
7. Units of Prosecution....................................................................................143
8. Olympic Symbols.........................................................................................145
E. Penalties.................................................................................................................146
1. Fines and Imprisonment............................................................................146
2. Restitution.....................................................................................................146
3. Forfeiture........................................................................................................149
4. Sentencing Guidelines.................................................................................149
F. Other Charges to Consider...............................................................................151

®

IV. Theft of Commercial Trade Secrets—
18 U.S.C. §§ 1831-1839........................................................................... 155
A. Introduction.........................................................................................................155
B. The Economic Espionage Act of 1996, 18 U.S.C. §§ 1831-1839..........157
1. Overview........................................................................................................157
2. Relevance of Civil Cases.............................................................................161
3. Elements Common to 18 U.S.C. §§ 1831, 1832................................162
4. Additional 18 U.S.C. § 1831 Element: Intent to Benefit a Foreign
Government, Foreign Instrumentality, or Foreign Agent...................182
5. Additional 18 U.S.C. § 1832 Elements..................................................185
6. Attempts and Conspiracies, Including
the Impossibility Defense...........................................................................189
C. Defenses.................................................................................................................191
1. Common Defenses......................................................................................191
2. Parallel Development..................................................................................198
3. Reverse Engineering....................................................................................199
4. Legal Impossibility.......................................................................................200
5. Advice of Counsel........................................................................................200
6. Claim of Right—Public Domain and Proprietary Rights..................201
7. The First Amendment.................................................................................202
8. Void-for-Vagueness......................................................................................203
D. Preserving Confidentiality and the Use of Protective Orders...................205
1. Overview........................................................................................................205
2. Interlocutory Appeals..................................................................................207
3. Types of Protective Orders.........................................................................210
v

4. Return of Trade Secrets Upon Conclusion of the Case.......................214
E. Special Issues.........................................................................................................214
1. Civil Injunctive Relief for the United States..........................................214
2. Parallel Proceedings......................................................................................215
3. Significance of Electronic Evidence in Trade Secret
and Economic Espionage Act Cases........................................................219
4. Extraterritoriality..........................................................................................221
5. Department of Justice Oversight..............................................................221
F. Penalties.................................................................................................................222
1. Statutory Penalties........................................................................................222
2. Sentencing Guidelines.................................................................................224
G. Other Charges to Consider...............................................................................224

V. Digital Millennium Copyright Act—
17 U.S.C. §§ 1201-1205........................................................................... 233
A. Introduction.........................................................................................................233
1. DMCA’s Background and Purpose..........................................................233
2. Key Concepts: Access Controls vs. Copy Controls,
Circumvention vs. Trafficking...................................................................234
3. Differences Between the DMCA and Traditional Copyright Law...238
4. Other DMCA Sections That Do Not Concern Prosecutors..............240
B. Elements of the Anti-Circumvention and
Anti-Trafficking Provisions................................................................................241
1. Circumventing Access Controls—17 U.S.C. §§ 1201(a)(1)
and 1204........................................................................................................241
2. Trafficking in Access Control Circumvention Tools
and Services—17 U.S.C. §§ 1201(a)(2) and 1204..............................253
3. Trafficking in Tools, Devices, and Services to Circumvent
Copy Controls—17 U.S.C. §§ 1201(b)(1) and 1204........................258
4. Alternate § 1201(b) Action—Trafficking in Certain
Analog Videocassette Recorders and Camcorders................................262
5. Falsifying, Altering, or Removing Copyright Management
Information—17 U.S.C. § 1202.............................................................262
C. Defenses.................................................................................................................263
1. Statute of Limitations..................................................................................263
2. Librarian of Congress Regulations...........................................................263
3. Certain Nonprofit Entities.........................................................................264
4. Information Security Exemption..............................................................264
vi

5. Reverse Engineering and Interoperability
of Computer Programs...............................................................................264
6. Encryption Research....................................................................................267
7. Restricting Minors’ Access to the Internet.............................................269
8. Protection of Personally Identifying Information................................269
9. Security Testing.............................................................................................270
10. Constitutionality of the DMCA...............................................................270
D. Penalties.................................................................................................................279

VI. Counterfeit and Illicit Labels, Counterfeit
Documentation and Packaging—18 U.S.C. § 2318................ 281
A. Distinguished from Trademark and Copyright Statutes............................281
B. Elements................................................................................................................282
1. The Defendant Acted “Knowingly”.........................................................283
2. The Defendant Trafficked...........................................................................284
3. Trafficking in Labels Affixed to, Enclosing, or Accompanying
(or Designed to be Affixed to, Enclose, or Accompany)
a Phonorecord, Computer Program, Motion Picture
or Other Audiovisual Work, Literary, Pictorial, Graphic,
or Sculptural Work, or Work of Visual Art, or Trafficking
in Documentation or Packaging for Such Works.................................285
4. The Labels, Documentation, or Packaging Materials
Are Counterfeit or Illicit.............................................................................286
5. Federal Jurisdiction......................................................................................288
6. Venue...............................................................................................................290
C. Defenses.................................................................................................................290
1. Statute of Limitations..................................................................................290
2. First Sale (Does Not Apply).......................................................................290
D. Special Issues.........................................................................................................290
1. Electronic Copies of Labels, Documentation, or Packaging.............290
2. Advantages of Charging a § 2318 Offense.............................................291
E. Penalties.................................................................................................................292
1. Fines................................................................................................................292
2. Imprisonment...............................................................................................292
3. Restitution.....................................................................................................292
4. Forfeiture........................................................................................................293
5. Sentencing Guidelines.................................................................................293
F. Other Charges to Consider...............................................................................295
vii

VII. Patent................................................................................................................ 297
A.
B.
C.
D.

Overview of Patent..............................................................................................297
Forgery of Letters Patent—18 U.S.C. § 497................................................298
False Marking of Patent—35 U.S.C. § 292..................................................299
No Prosecution for Interstate Transportation or Receipt
of Stolen Property—18 U.S.C. §§ 2314, 2315...........................................304

VIII.Penalties, Restitution, and Forfeiture............................................ 305
A. Introduction.........................................................................................................305
B. The Statutory Sentencing Factors....................................................................306
C. Sentencing Guidelines........................................................................................310
1. Offenses Involving Copyright (Including Bootleg Music,
Camcorded Movies, and the Unauthorized Use of Satellite,
Radio, and Cable Communications), Trademark,
Counterfeit Labeling, and the DMCA...................................................311
2. Offenses Involving the Economic Espionage Act (EEA)....................331
D. Restitution.............................................................................................................343
1. Restitution is Available—and Often Required—
in Intellectual Property Prosecutions.......................................................343
2. Identifying Victims Who Qualify for Restitution................................348
3. Determining a Restitution Figure............................................................352
E. Forfeiture...............................................................................................................357
1. Property Subject to Forfeiture...................................................................360
2. Overview of Forfeiture Procedures...........................................................360
3. Choosing a Forfeiture Procedure..............................................................368
4. Civil Forfeiture in Intellectual Property Matters..................................369
5. Criminal Forfeiture in IP Matters............................................................370
6. Domain Name Forfeiture...........................................................................372
7. Interbank Account Seizures of Foreign Bank Funds............................375

IX. Charging Decisions.................................................................................. 377
A. Introduction.........................................................................................................377
B. The Federal Interest in Intellectual Property Crimes..................................378
1. Federal Law Enforcement Priorities.........................................................378
2. The Nature and Seriousness of the Offense...........................................379
3. The Deterrent Effect of Prosecution........................................................381
4. The Individual’s History of Criminal Offenses and
Civil Intellectual Property Violations......................................................381
viii

5. The Individual’s Willingness to Cooperate
in the Investigation or Prosecution of Others.......................................382
C. Whether the Person Is Subject to Prosecution
in Another Jurisdiction......................................................................................382
D. The Adequacy of Alternative Non-Criminal Remedies..............................384
E. Special Considerations in Deciding Whether
to Charge Corporations and Other Business Organizations....................385

X. Victims of Intellectual Property Crimes—
Ethics and Obligations............................................................................. 387
A. Victims’ Rights.....................................................................................................387
B. The Victim’s Role in the Criminal Prosecution............................................390
1. Reporting an Intellectual Property Crime..............................................390
2. Ethical Concerns When the Criminal Prosecution Results
in an Advantage in a Civil Matter............................................................390
3. Parallel Civil Suits........................................................................................393
C. Offers of Assistance From Victims and Related Parties..............................397
1. Gift Issues.......................................................................................................398
2. Professional Responsibility Issues.............................................................408
3. Strategic and Case-Related Issues.............................................................409
4. Help and Advice...........................................................................................412

Appendices

A. Commonly Charged Intellectual Property Crimes.....................................413
B-F. Sample Indictments and Jury Instructions..................................................437
G. Intellectual Property Contact List...................................................................439
H. Checklist for Reporting an Intellectual Property Crime............................453
I. Pre-PRO-IP Act Forfeiture Statutes for IP Offenses...................................465
J. Examples of Traditional Assistance and Gifts to Law Enforcement........473

Index.......................................................................................................................... 481

ix

x

Preface and
Acknowledgements
This publication is the fourth edition of the “Prosecuting Intellectual
Property Crimes” Manual and provides significant updates to the comprehensive
2006 edition. It examines in depth all areas of prosecuting intellectual property
crimes and incorporates a number of recent changes to the case law, statutes,
and sentencing guidelines. Throughout, the material is presented in a way that
is intended to provide the most practical use to prosecutors.
This publication is the result of a tremendous amount of work by many
individuals in the Computer Crime and Intellectual Property Section. Kendra
Ervin assumed primary responsibilities as Managing Editor as well as providing
substantive updates to chapters. Many other CCIPS attorneys made significant
contributions as well, including in alphabetical order: Thomas Dougherty,
Scott Eltringham, Jason Gull, Eric Klumb, Brian Levine, Evan Williams and
John Zacharia. Former CCIPS attorneys whose efforts also contributed include
Matthew Bassiur, Mark Krotoski, Tyler Newby and Tara Swaminatha. CCIPS
supervisory paralegal specialist Kathleen Baker deserves special mention for
her superior editing and proofing contributions. Other paralegals and summer
interns who contributed to this publication over the past few years include:
Allyson Bennett, Jarrell Cook, Glenn Gordon, Lily Hines, Michael McCluskey,
and John Sprangers.
Finally, we are grateful to Ed Hagen and others at the Office of Legal
Education for putting this Manual into final form worthy of publication.
This Manual is intended as assistance, not authority. The research, analysis,
and conclusions herein reflect current thinking on difficult areas of the law;
they do not represent the official position of the Department of Justice or
any other agency. This Manual has no regulatory effect, confers no rights or
remedies, and does not have the force of law or a U.S. Department of Justice
directive. See United States v. Caceres, 440 U.S. 741 (1979).
If you have questions about anything in this book, we invite you to call
the Computer Crime and Intellectual Property Section at (202) 514-1026.
xi

Attorneys are on duty every day for the specific purpose of answering such calls
and providing support to U.S. Attorney’s Offices nationwide.
Andrea M. Sharrin,
Deputy Chief
Computer Crime & Intellectual Property Section
Criminal Division
Department of Justice

xii

I.
Intellectual Property—
An Introduction
A.

Why Is Intellectual Property Enforcement
Important?

Intellectual property (IP), including creative works protected by copyright,
brand identification protected by trademark, and novel inventions protected
by patents and trade secret law, encompasses a vital component of the U.S.
economy and, increasingly, the world’s collective wealth. American music,
motion pictures, business and entertainment software, as well as American
brands, form an important part of America’s cultural identity. The U.S. is
also home to some of the world’s largest manufacturers and most innovative
companies, whose sought-after products are exported throughout the world.
According to the Department of Commerce, in 2010 “IP-intensive industries”—
those most reliant on copyright, trademark and patent protection—accounted
for more than 27 million or more than one sixth of all jobs in the U.S., and
more than one third of the U.S. gross domestic product. Department of
Commerce, Intellectual Property and the U.S. Economy: Industries in Focus at
vi-vii (March 2012), available at http://www.esa.doc.gov/sites/default/files/
reports/documents/ipandtheuseconomyindustriesinfocus.pdf. Effective IP
enforcement can help to preserve and create jobs and economic growth by
fostering a level playing field for fair competition in the global marketplace.
Protecting IP rights is essential to fostering the innovation and creativity
which fuels the U.S. economic engine. IP rights create incentives for
entrepreneurs, artists, firms, and investors to commit the necessary resources
to research, develop, and market new technologies and creative works. As one
court observed, “[t]he future of the nation depends in no small part on the
efficiency of industry, and the efficiency of industry depends in no small part
on the protection of intellectual property.” Rockwell Graphic Sys., Inc. v. DEV
Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991).
1

The criminal enforcement of IP rights plays a critical role in safeguarding
U.S. economic and national security interests as well as protecting the health
and safety of consumers worldwide. The impact of today’s IP crime is not limited
to the economic challenges associated with piracy, counterfeiting, or trade
secret theft. Inferior, unsafe counterfeits, ranging from electrical equipment
to auto parts to pharmaceuticals, not only defraud ordinary consumers, but
also can pose significant risks to their health and safety. The potential harm
from counterfeit goods is further compounded when those goods enter the
government or military supply chain, where they can impact the safety of our
Armed Forces, and even compromise national security. Likewise, our national
security interests can be undermined by foreign and domestic competitors who
deliberately target leading U.S. industries and technologies to obtain sensitive
trade secrets that have applications in defense, security, or critical infrastructure.
This is a dynamic time for IP enforcement. New technology and more
sophisticated methods of manufacturing and distribution have created
unprecedented opportunities for legitimate businesses, both large and small,
to develop their products and market and distribute them around the world.
Manufacturers and consumers are increasingly interconnected due to advances
in telecommunication networks, integrated financial markets, and global
advertising. Consumers enjoy near-immediate access to almost any product
manufactured in the U.S. or abroad. They can provide instant payment through
an international credit card system or online payment processors and receive
their purchase either through immediate downloading of digital content
or overnight shipment of tangible goods through express courier services.
Companies and their employees also can conduct business seamlessly from
anywhere in the world. Virtually all business records, research, and sensitive
information exists in digital form and can be stored, accessed, copied, and
transmitted using computer networks, cloud storage, and large capacity mobile
devices.
Unfortunately, IP criminals exploit the benefits of these advances to support
illegal piracy and counterfeiting operations. U.S. companies suffer substantial
losses from international trade in counterfeit and pirated goods, which the
OECD has estimated to amount to hundreds of billions of dollars each year.
See Organization for Economic Cooperation and Development, Magnitude of
Counterfeiting and Piracy of Tangible Products: An Update (November 2009);
Frontier Economics, Estimating the Global Economic and Social Impacts of
Counterfeiting and Piracy (February 2011) (suggesting the value of counterfeit
2

Prosecuting Intellectual Property Crimes

and pirated products for G20 nations was $650 billion in 2008 and likely to
more than double by 2015).
Although quantifying the economic effects of counterfeit and pirated goods
with precision is difficult, the problem is undeniably sizable with substantial
consequences: to industry in the form of lost sales, lost brand value, and reduced
incentives to innovate; to consumers who use or ingest substandard or unsafe
counterfeit goods; to governments which may lose tax revenue and face risks of
counterfeits entering national security or critical infrastructure supply chains;
and to economic growth slowed by reduced innovation and lost trade revenue.
See U.S. Government Accountability Office, Intellectual Property: Observations
on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods
(Publication Number GAO-10-423) (April 2010).
In addition to piracy and counterfeiting, corporate- and state-sponsored
trade secret theft is on the rise and increasing in size and scope. Whether
committed by corrupt insiders or foreign actors, the Internet and new
technologies have enabled criminals to steal massive amounts of sensitive
information almost instantaneously while remaining difficult to detect. See
Office of the National Counterintelligence Executive, Foreign Spies Stealing US
Economic Secrets in Cyberspace, available at http://www.ncix.gov/publications/
reports/fecie_all/Foreign_Economic_Collection_2011.pdf. As leaders in
innovation, U.S. companies are prime targets for the misappropriation of
valuable and sensitive trade secrets, particularly by foreign competitors. Trade
secrets may represent years of research and development to a company, with
billions of dollars in related costs, and may constitute a substantial portion of
the company’s worth. Trade secret theft can financially devastate an individual
victim and, when committed for the benefit of a foreign entity, can undermine
the economic competitiveness of the U.S. as a whole. In cases involving critical
technologies with military or other sensitive applications, trade secret theft can
also pose a risk to national security.
Recognizing the escalating and serious threats posed by IP crime,
Congress, the Administration, and the Department of Justice have all taken
steps to enhance IP enforcement domestically and abroad. In the last five years,
Congress has enacted several major pieces of legislation to enhance criminal
enforcement tools to combat IP crime, including amendments to the statutes
criminalizing trademark counterfeiting, criminal copyright infringement,
and economic espionage. As of the writing of this Manual, the United States
Sentencing Commission is considering amendments to the Sentencing
I. Intellectual Property—An Introduction

3

Guidelines applicable to offenses involving trade secret theft, counterfeit drugs,
and counterfeit military goods or services.
In the Prioritizing Resources and Organization for Intellectual Property Act
of 2008 (PRO-IP Act), Pub. L. No. 110-403, § 101, 122 Stat. 4256 (2008),
Congress established the Intellectual Property Enforcement Coordinator (IPEC)
position to serve in the Executive Office of the President. Among other things,
the IPEC brings a coordinated government-wide approach to IP enforcement.
The Department worked closely with the IPEC in developing the 2010 Joint
Strategic Plan on Intellectual Property Enforcement (June 2010) and the 2013
Joint Strategic Plan on Intellectual Property Enforcement (forthcoming),
the IPEC’s Annual Report on IP Enforcement, the Administration’s White
Paper on Intellectual Property Enforcement Legislative Recommendations
(March 2011), and the Administration Strategy on Mitigating the Theft of
U.S. Trade Secrets (February 2013), among other efforts. See http://www.
whitehouse.gov/omb/intellectualproperty. The Department plays a significant
role in implementing the criminal enforcement aspects of the Administration’s
strategies.
Attorney General Holder has also made the investigation and prosecution
of IP crime a top law enforcement priority. Although a well-developed civil
enforcement regime in the U.S. allows IP owners to enforce their rights and
obtain compensation for losses, civil enforcement alone is insufficient to address
the increasingly sophisticated nature and broad scope of IP infringement.
Criminal sanctions are critical to deter and hold accountable the most egregious
IP violators. To this end, in February 2010, the Attorney General established
a Task Force on Intellectual Property as part of a Department-wide initiative
to confront the growing number of domestic and international IP crimes.
The IP Task Force, chaired by the Deputy Attorney General and comprising
senior Department officials from components with a stake in IP enforcement,
including the Criminal Division and Executive Office of the U.S. Attorneys,
has brought a coordinated approach and high-level support to the Department’s
overall efforts to combat IP crime. See http://www.justice.gov/dag/iptaskforce/.
Through the IP Task Force, the Department recommends that prosecutors
prioritize IP investigations and prosecutions involving health and safety,
trade secret theft and economic espionage, and large-scale criminal copyright
infringement and trademark counterfeiting. Prosecutors are also encouraged to
pay particular attention to those offenses committed or facilitated by use of the
4

Prosecuting Intellectual Property Crimes

Internet, perpetrated by organized criminal networks or repeat offenders, and
those cases that are international in scope.
The Department pursues a three-front approach to ensure aggressive and
effective prosecution. First, the Criminal Division’s Computer Crime and
Intellectual Property Section (CCIPS), based in Washington, D.C., provides a
core team of expert IP prosecutors who investigate, prosecute, and coordinate
national multi-district and international IP cases. This group of specialists helps
develop and implement the Department’s overall IP enforcement strategy, and
provides training and 24/7 support to Assistant U.S. Attorneys nationally. This
Manual, for instance, is one of the training tools that CCIPS provides.
Second, because primary responsibility for prosecution of federal crimes
generally—and IP offenses specifically—falls to the ninety-three U.S. Attorneys’
Offices across the U.S. and its territories, the Department has designated at
least one, and often more than one, Computer Hacking and Intellectual
Property (“CHIP”) Coordinator in every U.S. Attorney’s Office in the country.
CHIP Coordinators are Assistant U.S. Attorneys with specialized training
in prosecuting IP and computer crime offenses and who serve as subjectmatter experts within their districts. As of this writing, there are over 260
CHIP prosecutors designated to handle both computer crime and IP matters
nationwide.
Third, CHIP Units augment the extensive network of CHIP prosecutors.
Each CHIP Unit consists of a concentrated number of trained Assistant U.S.
Attorneys in the same office. CHIP Units are strategically located in districts
that experience a higher incidence of IP and cyber-crime, or where such
crimes have the highest economic impact. These specialized squads focus on
prosecuting IP offenses such as trademark counterfeiting, criminal copyright
infringement, and theft of trade secrets. In addition, they prosecute hightechnology offenses including computer hacking, virus and worm proliferation,
Internet fraud, and other attacks on computer systems. CHIP Unit attorneys
are also actively involved in regional training of other prosecutors and federal
agents on conducting high-tech investigations, and they work closely with
victims of IP theft and cybercrime on prevention efforts.
The combined prosecution efforts of the CHIP network, CHIP Units, and
CCIPS create a formidable enforcement network to combat IP crime. These
enforcement efforts will be even more critical in the future, as advances in

I. Intellectual Property—An Introduction

5

technology, and the increasingly important role IP plays in the U.S. and global
economy, continue to present new challenges.

B.

What Is Intellectual Property?

Similar to the way the law recognizes ownership rights in material
possessions such as cars and homes, it also grants rights in intangible property,
such as the expression of an idea or an invention. Federal law protects IP in
four distinct areas: copyright, trademark, patent, and trade secrets.
1. Copyright
Copyright law is designed to foster the production of creative works and
the free flow of ideas by providing legal protection for creative expression.
Copyright protects the copyright holder against the infringement of any of six
exclusive rights in “original works of authorship fixed in any tangible medium
of expression,” including: computer software; literary, musical, and dramatic
works; motion pictures and sound recordings; and pictorial, sculptural, and
architectural works. See 17 U.S.C. § 102(a). The six exclusive rights are the
rights of reproduction, public distribution, public performance, public display,
preparation of derivative works, and public performance by digital audio
transmission. 17 U.S.C. § 106. Copyright law protects the physical expression
of an idea, but not the idea itself. Therefore, legal protection exists as soon as
the work is expressed in tangible form, but not before.
Although civil and criminal law contain protections for all the copyright
owner’s exclusive rights, criminal enforcement focuses primarily on the
distribution and reproduction rights, the only two rights for which the violation
can be a felony offense subject to higher criminal penalties. See 17 U.S.C.
§ 506(a) and 18 U.S.C. § 2319. Those convicted of criminal felony copyright
infringement face up to five years’ imprisonment and a $250,000 fine. Id.
2. Trademarks and Service Marks
The federal law of trademarks and service marks protects a commercial
identity or brand used to identify a product or service to consumers. The
Lanham Act, 15 U.S.C. §§ 1051-1127, prohibits the unauthorized use of
a trademark, which is defined as “any word, name, symbol, or device” used
by a person “to identify and distinguish his or her goods, including a unique
product, from those manufactured or sold by others and to indicate the source
of the goods.” 15 U.S.C. § 1127. By registering trademarks and service marks
6

Prosecuting Intellectual Property Crimes

with the U.S. Patent and Trademark Office, the owner is granted the exclusive
right to use the marks in commerce in the United States, and can exclude
others from using the mark, or a comparable mark, in a way likely to cause
confusion in the marketplace. A protected mark might be the name of the
product itself, such as “Pfizer” or “L.L.Bean”, a distinguishing symbol, such as
the Nike “Swoosh” or the MGM lion, or a distinctive shape and color, such as
the blue diamond shape of a Viagra tablet. Certain symbols like the Olympic
rings also receive protection.
Legal protections for trademarks and service marks not only help protect
the goodwill and reputation of trademark owners, but also promote fair
competition and the integrity of the marketplace. Additionally, they protect
consumers by helping to ensure they receive accurate information about the
origins of products and services.
Federal criminal law has long prohibited trafficking in goods or services
that bear a counterfeit mark. 18 U.S.C. § 2320. As discussed more fully in
subsequent chapters, in 2012, the criminal trademark statute was amended to
create new offenses and higher penalties for trafficking in counterfeit drugs and
certain counterfeit military goods or services. Individuals convicted of § 2320
offenses generally face up to 10 years’ imprisonment and a $2 million fine.
If the offense involved serious bodily injury, counterfeit drugs, or counterfeit
military goods or services, individuals face up to 20 years in prison and a $5
million fine.
3. Patents
Patents protect the world of inventions. In its simplest form, a patent is
a property right for an invention granted by the government to the inventor.
A patent gives the owner the right to exclude others from making, using, and
selling devices that embody the claimed invention. See 35 U.S.C. § 271(a).
Patents generally protect products and processes, not pure ideas. Thus, Albert
Einstein could not have received a patent for his theory of relativity, but methods
for using this theory in a nuclear power plant are patentable. Inventors must
file for patent protection with the U.S. Patent and Trademark Office.
There are three types of patents: utility, design, and plant. Utility patents
are the most common form and are available for inventions that are novel,
non-obvious, and useful; that is, “any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof.” 35 U.S.C. § 101. Examples of utility patents include the ingredients
I. Intellectual Property—An Introduction

7

of Silly Putty (1949) and the diagnostic x-ray system known as the CAT-Scan
(1975).
Unlike copyright and trademark infringement, there are no criminal—only
civil—penalties for committing patent infringement. However, there are some
criminal and quasi-criminal penalties for certain conduct related to patents.
4. Trade Secrets
A trade secret can be any form or type of commercially-valuable information
that the owner has taken reasonable measures to keep secret and that has
an independent economic value from the fact that it is secret and cannot
be readily ascertained by the public. Trade secrets can include, for example,
technical, scientific, and engineering data, business records, or economic and
financial information. See 18 U.S.C. § 1839(3). One of the most famous trade
secrets is the formula for manufacturing Coca-Cola. The Coca-Cola formula
was recognized as a trade secret in 1920, at which time a court noted that
the formula had been continuously maintained as a trade secret since the
company’s founding in 1892. See Coca-Cola Bottling Co. v. Coca-Cola Co.,
269 F. 796 (D. Del. 1920) (holding that Coca-Cola retained legal title to its
formula upon entering a bottling contract because it kept the formula secret).
And, it remains Coca-Cola’s most closely guarded trade secret to this day. See
http://www.worldofcoca-cola.com/secret-vault.htm.
Trade secrets are broader in scope than patents, and include scientific and
business information (e.g., market strategies). However, the information can be
freely used if it is obtained or learned through legitimate means, such as reverse
engineering. Moreover, if the trade secret is publicly disclosed, it generally loses
its legal protection.
The theft of trade secrets is punishable by up to 15 years’ imprisonment
and a $5 million fine if committed to benefit a foreign government or agent,
see 18 U.S.C. § 1831, and up to ten years’ imprisonment and a $250,000 fine
in other cases, see 18 U.S.C. § 1832.

8

Prosecuting Intellectual Property Crimes

II.
Criminal Copyright
Infringement—
17 U.S.C. § 506 and
18 U.S.C. § 2319
Willful copyright infringement is criminalized by 17 U.S.C. § 506(a),
which defines what conduct is prohibited, and 18 U.S.C. § 2319, which sets
the penalties for such conduct. Felony penalties can attach either when the
violation consists of the reproduction or distribution of at least ten copies
having a total retail value of at least $2,500 or, under amendments enacted in
2005, when the violation involves online distribution of a “pre-release” work
not yet available on the legitimate market over a publicly-accessible computer
network.
This Chapter provides an overview of copyright law, an analysis of the
elements of copyright infringement, a review of the defenses to the crime, and
a summary of the statutory penalties arising from convictions. This chapter
also explores some of the novel copyright infringement issues presented by new
technologies. Forms providing sample indictments and jury instructions for
criminal copyright infringement are provided in Appendix B.
Prosecutors may also wish to consult Nimmer on Copyright, a leading
treatise on copyright law, with many of its sections being cited by courts as
if they were black-letter law, including a chapter on criminal offenses. See
Melville B. Nimmer & David Nimmer, Nimmer on Copyright (2011). Other
major treatises and articles that may be instructive include William F. Patry,
Patry on Copyright (2012); Copyright Law and Practice (1994 & Supps. 19952000); Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am. Crim.
L. Rev. 849 (2011); Michael Coblenz, Intellectual Property Crimes, 9 Alb. L.J.
Sci. & Tech. 235 (1999).

9

A.

Overview
1. What Copyright Law Protects

In the United States, copyright law has a two-part goal: to protect the
rights of authors, and thereby, to foster development of more creative works to
benefit the public. The Constitution, in granting Congress the power to enact
intellectual property laws, describes this goal and the means to achieve it: “[t]o
promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their respective Writings and
Discoveries.” U.S. Const., art. I, § 8, cl. 8. Maintaining an appropriate balance
between the rights and incentives for authors, and encouraging dissemination
of knowledge and information by and to the public, is a constant theme
throughout the history of copyright law. See Twentieth Century Music Corp. v.
Aiken, 422 U.S. 151, 156 (1975).
Copyright law grants the creator of an original work of expression, fixed
in a tangible medium, a “copyright,” which is the exclusive right, protected
for a limited period of time, to copy, distribute, and make certain other uses
of the work. See 17 U.S.C. § 102(a) (Copyright law protects “original works
of authorship fixed in any tangible medium of expression, now known or later
developed, from which they can be perceived, reproduced, or otherwise
communicated, either directly or with the aid of a machine or device.”)
(emphasis added). “Originality” in copyright law is a low threshold: the work
need only have been independently created by the author, as opposed to copied
from another, previous work, and it must possess only a minimal degree of
creativity. See Section B.1.a. of this Chapter.
An important limitation of copyright is that it protects only the creative
expression of an idea, but not the idea itself. See Section B.1.a. of this Chapter.
Novel ideas, methods, and processes may enjoy protection under patent law (or
other areas of law, such as trade secret protection), but are not copyrightable. For
example, consider a microbiologist who invents a new technique for modifying
particular genes in a cell, then writes an article for a magazine that describes the
technique. The article may be protected by copyright as the author’s original
expression of his or her ideas regarding this new technique. The technique
itself, however, would not be copyrightable, although it may be patentable.
Copyrights are also distinct from trademarks, which protect the exclusive
use of certain names, pictures, and slogans used in connection with goods or
services. Trademarks need not be original or creative and may consist of short
10

Prosecuting Intellectual Property Crimes

single words or phrases that are ineligible for copyright protection. Trademarks
are discussed in Chapter III of this Manual. Despite the differences between
copyrights and trademarks, there are instances in which a single items may be
both copyrighted and trademarked; an iconic example of such an item would
be the image of Disney’s Mickey Mouse.
2. Legal Basis for Copyright and Related Laws
The Constitution grants Congress the power to regulate copyright: “[t]o
Promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their respective Writings and
Discoveries,” U.S. Const., art. I, § 8, cl. 8. Congress also derives authority
to regulate some copyright-related issues from the Commerce Clause, U.S.
Const. art. I, § 8, cl. 3.
Copyright protection is principally statutory. Sony Corp. v. Universal City
Studios, Inc., 464 U.S. 417, 429-31 (1984). Federal copyright statutes are
found primarily in Title 17 of the U.S. Code, of which sections 101 through
1101 are known as the “Copyright Act,” a reference to the last major overhaul
of copyright statutes in the 1976 Copyright Act. The offenses for criminal
copyright infringement are set forth in 17 U.S.C. § 506 and the related
penalties are set forth in 18 U.S.C. § 2319.
The first sale and fair use defenses to copyright infringement, originally
common law doctrines, have been codified in the Copyright Act at 17
U.S.C. §§ 107, 109, respectively. Additionally, because courts often interpret
copyright law in light of new events and technological developments, there
exists significant judge-made law that might not otherwise be obvious from
the statutes. E.g., Metro Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.
S. 913 (2005); Sony, 464 U.S. 417.
3. Relevance of Civil Cases to Criminal Prosecutions
The vast majority of copyright case law is civil, rather than criminal,
and often civil cases provide the only judicial authority available in criminal
prosecutions. In this regard, civil precedent is often instructive to criminal
copyright statutes. See United States v. Wise, 550 F.2d 1180, 1188 n.14 (9th Cir.
1977) (noting “general principle in copyright law of looking to civil authority
for guidance in criminal cases”); see also United States v. Manzer, 69 F.3d 222,
227 (8th Cir. 1995) (same); United States v. Cross, 816 F.2d 297, 303 (7th Cir.
1987) (same, with respect to jury instructions); Kelly v. L.L. Cool J., 145 F.R.D.
II. Criminal Copyright Infringement

11

32, 39 (S.D.N.Y. 1992) (noting that conduct that does not support a civil
action for infringement cannot constitute criminal infringement); 4 Nimmer
on Copyright § 15.01.
Criminal penalties, however, apply to only a subset of conduct constituting
copyright infringement, and what makes a good civil case does not necessarily
make a good criminal case. For example, a defendant can be civilly liable
for copyright infringement as a matter of strict liability, with no intent to
infringe. See Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp.
177 (S.D.N.Y. 1976) (finding infringement where composer “subconsciously”
copied earlier song). By contrast, a criminal copyright defendant can be
convicted only if he infringed willfully. See Section B.2. of this Chapter.
4. Federal Preemption
Copyright law is primarily a matter of federal law. For most of the history
of the United States, state- and common-law copyright protections coexisted
with federal copyright laws. See, e.g., Wheaton v. Peters, 33 U.S. 591, 597-98
(1834). But the Copyright Act of 1976 amended Title 17 to preempt state laws
that provide rights “equivalent to” rights granted under federal copyright law.
17 U.S.C. § 301(a).
Despite this preemption, copyright law continues to be intertwined with
state law in certain cases, such as those involving license agreements and other
contracts governing ownership and use of copyrighted works. E.g., Storage
Technology Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307
(Fed. Cir. 2005). State copyright law also continues to apply to sound recordings
recorded before 1972 because sound recordings were not protected by federal
copyright law until that year. Consequently, pre-1972 sound recordings may
still be protected by state copyrights for several more decades. See La Cienega
Music Co. v. ZZ Top, 53 F.3d 950 (9th Cir. 1995); 17 U.S.C. § 301(c).
Although § 301 preempts state laws that provide protection equivalent to
federal copyright law, a number of states have adopted criminal laws against
unauthorized copying or distribution of copies that are directed toward the
same types of piracy and counterfeiting targeted by federal criminal copyright
laws. For example, most states have adopted statutes (often known as “true
names” or “true name and address” laws) that require distributors of copies of
certain classes of works (generally recorded music or films) to identify on the
copies themselves the name and address of the manufacturer or distributor of
those copies. See, e.g., Cal. Penal Code § 653w(a)(1) (unlawful to sell recordings
12

Prosecuting Intellectual Property Crimes

that do not “clearly and conspicuously disclose the actual true name and
address of the manufacturer”); Ga. Code § 16-8-60(b) (unlawful to distribute
recorded music or film unless copies bear true name and address of producer);
Mich. Comp. Laws Ann. § 752.1053 (criminal offense to distribute recordings
knowing they do not bear the true name and address of manufacturer); N.Y.
Penal Law §§ 275.35, 275.40 (unlawful to commercially distribute recordings
that do not bear true name and address of manufacturer or performer); Virginia
Code § 59.1-41.4 (“Recorded devices” must show true name of manufacturer).
These types of state law have been upheld against preemption challenges.
See, e.g., Anderson v. Nidorf, 26 F.3d 100, 102 (9th Cir. 1994) (California “true
names” statute not preempted by § 301 in sound recording case); Briggs v.
State, 638 S.E.2d 292 (Ga. 2006) (Georgia “true names” statute not preempted
because lack of identifying label was “extra element” not present in federal
copyright law).
5. When Copyright Protection Begins and Ends
A work is protected by copyright law from the moment it is created. See 17
U.S.C. §§ 101-102(a), 408(a). Neither publication of the work nor registration
of the work with the Register of Copyrights is a prerequisite to copyright
protection; however, these acts may affect the remedies available for infringement.
For example, registration is a prerequisite to a copyright holder’s civil suit for
infringement, at least in the case of U.S. works. See 17 U.S.C. § 411. If a
work is registered only after infringement has occurred, a copyright owner may
still collect actual damages for infringement committed prior to registration,
but cannot collect statutory damages or attorneys’ fees. See 17 U.S.C. § 412.
As clarified in the Prioritizing Resources and Organizations for Intellectual
Property (PRO-IP) Act of 2008, Pub. L. No. 110-403, § 101, 122 Stat. 4256,
4257-58 (2008), registration of a copyright is not a prerequisite to criminal
prosecution for infringement of that work, although copyright registration is
helpful in proving the elements of a criminal case, as discussed in Section B.1.
of this Chapter.
Works created in 1978 or later are protected by copyright for the life of
the author plus 70 years. See 17 U.S.C. § 302(a). For a work with one or more
joint authors, the life of the surviving author is used. 17 U.S.C. § 302(b).
Works made for hire (i.e., works made by or at the behest of a corporation) and
anonymous works are protected for 95 years from the date of first publication,
or 120 years from creation (whichever comes first). 17 U.S.C. § 302(c). Most
II. Criminal Copyright Infringement

13

works created prior to 1978 are protected for 95 years from the date the
copyright in the work was first secured (generally the date of publication). 17
U.S.C. § 304.
6. The Rights Protected by Copyright
Copyrighted law grants copyright holders the following six exclusive rights
to their works: (1) reproduction, (2) preparation of derivative works based upon
the original copyrighted work, (3) public distribution, (4) public performance
of certain types of works, (5) public display of certain types of works, and
(6) performance of sound recordings by means of digital audio transmission.
See 17 U.S.C. § 106(1)-(6); 17 U.S.C. § 101 (defining “sound recording”
to exclude audiovisual works); 17 U.S.C. § 114(j)(5) (excluding transmission
of audiovisual works from the definition of “digital audio transmission”);
17 U.S.C. § 114(d) (limitations including exemptions for certain broadcast
transmissions, subscription transmissions, and licensed transmissions). In
March 2011, the Office of the Intellectual Property Enforcement Coordinator
recommended expanding the performance right in sound recordings to
include other, non-digital audio transmissions (such as traditional broadcast
radio), and bills have been introduced in Congress to effect similar changes. See
Administration’s White Paper on Intellectual Property Enforcement Legislative
Recommendations at 10 (March 2011), available at http://www.whitehouse.
gov/sites/default/files/ip_white_paper.pdf; Performance Rights Act, H.R. Rep.
No. 111-680 (2010) (H.R. 848; S. 379). As of this writing, however, U.S.
copyright law grants an exclusive performance right in sound recordings only
as to digital audio transmissions.
The exclusive rights set forth in 17 U.S.C. § 106 are subject to a number
of exceptions and limitations described in §§ 107-122, such as the right to
make limited or “fair use” of a work without permission, to resell or transfer
one’s own lawful copy of a work, and to reproduce a lawful copy of computer
software either as an essential step in using it or to make an archival copy.
Those exceptions are addressed throughout this Chapter.
Exercising one of the exclusive rights under § 106 without the copyright
holder’s authorization, or other legal authority, constitutes copyright
infringement. 17 U.S.C. § 501. The exclusive rights granted in § 106 are broad,
and include a variety of commercial and noncommercial activities. However,
not every unlicensed or unauthorized use of a copyrighted work constitutes an
infringement, as many uses will either fall outside the scope of § 106, or be
14

Prosecuting Intellectual Property Crimes

specifically exempted by §§ 107-122. “An unlicensed use of the copyright is
not an infringement unless it conflicts with one of the specific exclusive rights
conferred by the copyright statute.” Sony Corp. v. Universal City Studios, Inc.,
464 U.S. 417, 447 (1984) (citation omitted); see also Benjamin Kaplan, An
Unhurried View of Copyright 57 (1967) (“The fundamental [is] that ‘use’ is
not the same thing as ‘infringement,’ that use short of infringement is to be
encouraged ....”).
7. When Infringement Is Criminal
Any instance of infringement will generally entitle a copyright owner to a
civil remedy, such as damages or injunctive relief. But not every infringement
is a criminal offense. Throughout the history of copyright in the United
States, criminal copyright penalties have been the exception rather than the
rule. Although criminal copyright law has greatly expanded the scope of the
conduct it penalizes over the past century, criminal sanctions continue to apply
only to certain types of infringement—generally when the infringer knows the
infringement is wrong, and when the infringement is particularly serious or the
type of case renders civil enforcement by individual copyright owners especially
difficult. As described in more detail below, a willful violation of any exclusive
right for commercial advantage or private financial gain is a misdemeanor,
whereas only a violation of the rights to reproduction and distribution under
certain circumstances constitutes felony infringement.
Copyright infringement is a crime if the defendant infringed willfully and
did so either (1) for commercial advantage or private financial gain, (2) by
reproducing or distributing one or more infringing copies of works with a
total retail value of over $1,000 over a 180-day period, or (3) by distributing
a “work being prepared for commercial distribution” by making it available
on a publicly-accessible computer network. 17 U.S.C. § 506(a)(1). Criminal
copyright infringement is punishable as a felony if the criminal conduct
described above involved reproduction or distribution of at least ten copies of
copyrighted works worth more than $2,500 in a 180-day period, or involved
distribution of a “work being prepared for commercial distribution” over a
publicly-accessible computer network. See id.; 18 U.S.C. § 2319.

II. Criminal Copyright Infringement

15

B.

Elements
There are three essential copyright crimes:
1. Willful infringement “for purposes of commercial advantage or private
financial gain,” 17 U.S.C. § 506(a)(1)(A).
2. Willful infringement by “the reproduction or distribution, including
by electronic means, during any 180-day period, of 1 or more copies or
phonorecords of 1 or more copyrighted works, which have a total retail
value of more than $1,000,” 17 U.S.C. § 506(a)(1)(B). Note that this
type of infringement does not have a financial component.
3. Willful infringement “by the distribution of a work being prepared for
commercial distribution, by making it available on a computer network
accessible to members of the public, if such person knew or should
have known that the work was intended for commercial distribution,”
17 U.S.C. § 506(a)(1)(C) (enacted in 2005). This violation, enacted in
2005, is commonly referred to as “pre-release” piracy and also does not
have a financial component.

The common factors for all criminal copyright offenses are that (1) there must be
a valid copyright, (2) there must be an infringement, and (3) the infringement
must be willful. Some courts also require that the government prove an extra
element: that the infringing items at issue were not permissible “first sales,”
although most courts hold the issue of “first sale” to be an affirmative defense.
See Section C.4. of this Chapter.
Felony copyright infringement only occurs when the defendant willfully
infringed a copyright by reproduction and distribution and only in the
following ways:
1. by (a) reproducing or distributing, “including by electronic means;” (b)
“during any 180-day period;” (c) “at least 10 copies or phonorecords,
of 1 or more copyrighted works;” (d) that have a “total retail value of
more than $2,500.” 18 U.S.C. § 2319(b)(1); OR
2. by (a) distributing a work; (b) that is “being prepared for commercial
distribution;” (c) by “making it available on a computer network;” (d)
“[knowing it] was intended for commercial distribution.” 17 U.S.C. §
506(a)(1)(C); 18 U.S.C. § 2319(d).

16

Prosecuting Intellectual Property Crimes

Although felony copyright infringement does not require a profit motive,
the maximum penalties will increase from three years to five if the offense
is committed for commercial advantage or private financial gain. 18 U.S.C.
§§ 2319(b)(1), (d)(2).
In other words, there are four essential elements to a charge of felony
copyright infringement:
1. A valid copyright exists (see Section B.1. of this Chapter);
2. The defendant acted willfully (Section B.2. of this Chapter);
3. The defendant infringed the copyright by reproduction or distribution
of the copyrighted work, or for violations of 17 U.S.C. § 506(a)(1)(C),
by distribution (Section B.3.a. of this Chapter);
4. The infringement consisted of either of the following:
(a) reproduction or distribution of at least 10 copies of one or more
copyrighted works with a total retail value of more than $2,500
within a 180-day period (Section B.3.b. of this Chapter); OR
(b) distribution
(i) of copies of a “work being prepared for commercial distribution”
(ii) by making such copies available on a publicly-accessible
computer network
(iii) when the defendant knew or should have known the work was
being prepared for commercial distribution (Section B.3.c. of
this Chapter).
Repeat felonies are subject to increased maximum penalties. See 18 U.S.C.
§ 2319(b)(2), (c)(2), (d)(3)-(4).
Amendments to the criminal copyright statutes in 1997 and 2005
significantly changed the elements of felony copyright infringement. See
No Electronic Theft Act (NET) Act, Pub. L. No. 105-147, 111 Stat. 2678
(1997) (removing the financial requirement for felony infringement); Family
Entertainment and Copyright Act of 2005, Pub. L. No. 109-9 § 103, 119 Stat.
218, 220-21 (2005) (creating a felony for pre-release piracy and camcording
in a movie theater, among other things); see also Prioritizing Resources and
Organizations for Intellectual Property (PRO-IP) Act of 2008, Pub. L. No.
110-403, 122 Stat. 4256 (2008) (clarifying forfeiture authority for property
II. Criminal Copyright Infringement

17

used to facilitate criminal copyright and other intellectual property offenses).
Cases predating these statutes should not necessarily be relied upon for
delineating the elements of current copyright offenses, but they remain useful
in interpreting the current law’s elements.
1. Existence of a Copyright
Under 17 U.S.C. § 506(a), the initial element of criminal copyright
infringement is that a valid copyright exists in the work or works in question.
While on its face this element may appear the simplest to prove, a number of
issues can add considerable complexity.
a. Copyrightability
Copyright law protects all “original works of authorship fixed in any tangible
medium of expression ....” 17 U.S.C. § 102(a) (emphasis added).
i. Original Work Fixed in a Tangible Medium
The subject matter of copyright is defined by two requirements: originality
and fixation. A work must be an original, creative expression of an idea or
concept, and it must be recorded in tangible form. Thus, copyright law protects
a novel or poem written on paper or typed in a computer, a song recorded in
a studio or written on sheet music, a sculpture modeled in clay or bronze, or a
computer program on a computer’s hard disk.
For copyright purposes, “original” has two requirements. First, the work
must have been independently created by the author, as opposed to copied
from another previous work. A work can be original even if it closely resembles
another work, “so long as the similarity is fortuitous, not the result of copying.”
Feist Publ’ns, Inc. v. Rural Telephone Co., 499 U.S. 340, 345-46 (1991) (citing
Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 54 (2d Cir. 1936) (noting
that identical poems created by different poets ignorant of one another would
both be original and copyrightable)). In practice, the odds against an artist or
author or musician creating a new work identical to an existing one, without
knowing of the earlier work, are remote, and in cases involving suspiciouslysimilar works, where the later artist had access or opportunity to learn of the
earlier work, courts have found the subsequent work infringing. See, e.g., Bright
Tunes v. Harrisongs Music, 420 F. Supp. 177 (S.D.N.Y. 1976). Second, the
work must also possess “at least some minimal degree of creativity.” Feist, 499
U.S. at 345. The amount of creativity required for originality is extremely low;
18

Prosecuting Intellectual Property Crimes

“a slight amount” of “creative spark” is all that is necessary, “no matter how
crude, humble or obvious.” Id. (citing 1 Nimmer on Copyright §§ 2.01[A],
[B] (1990)). What qualifies as “original” for copyright purposes may not be
considered “original” by, for example, those assessing the item’s artistic, literary,
or academic merit. Nor should “originality” be confused with “novelty,” which
is the touchstone of patent law, not copyright. See Chapter VII of this Manual.
To be copyrightable, a work must also be “fixed,” meaning the work is
recorded in some tangible medium by the author. For example, a song that is
composed onto sheet music or recorded to tape is fixed and thus copyrightable,
but a live performance of a song that is not recorded by the performer (or
someone authorized by the performer) would not be fixed, and thus the
performance itself would not be copyrightable, although the performance
might still enjoy protection under other laws. See the discussion of 18 U.S.C.
§ 2319A in Section F. of this Chapter.
ii. Short Phrases Are Not Copyrightable
Short single words, short phrases, and familiar symbols and designs
generally cannot be copyrighted. 37 C.F.R. § 202.1(a) (2004). They may,
however, be trademarked and thus protected under 18 U.S.C. § 2320; see
Chapter III of this Manual.
iii. Expression of an Idea vs. Idea Itself
An important limitation of copyright is that it protects only the creative
expression of an idea—but not the idea itself. 17 U.S.C. § 102(b) (“In no case
does copyright protection ... extend to any idea, procedure, process, system,
method of operation, concept, principle, or discovery ....”); see also Feist, 499
U.S. at 344-45; Mannion v. Coors Brewing Co., 377 F. Supp. 2d 444 (2005);
Whelan Assoc. v. Jaslow Dental Lab., 797 F.2d 1222 (3d Cir. 1986). Novel
ideas, methods, and processes may enjoy protection under trade secret or
patent law, but are not copyrightable. See Chapters IV and VII of this Manual.
For example, consider a new technique for modifying genes in a cell that is
described in a magazine article. Although the article might be copyrightable—
as an original expression of the author’s ideas about this new technique—the
technique itself would not. The technique might, however, be patentable.

II. Criminal Copyright Infringement

19

b. Copyrights vs. Registrations vs. Certificates
The notion of having a valid copyright is easily confused with the issue of
whether the work is registered with the Copyright Office, or with possession
of a valid copyright certificate issued by the Copyright Office. Throughout
much of U.S. history, copyright protection was predicated on certain formal
requirements, such as the need to register published works with the Copyright
Office, deposit copies with the Library of Congress, and mark copies of the
work with a copyright notice. However, major revisions to copyright law in the
1970s and 1980s eased these requirements, and now protect a copyrightable
work regardless of whether such formalities have been observed. See La Resolana
Architects, PA v. Clay Realtors Angel Fire, 416 F.3d 1195, 1198-1205 (10th Cir.
2005), abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 130 S.Ct.
1237 (2010). For a work created on or after January 1, 1978, copyright subsists
from the moment an original work of authorship is created by “fix[ing it] in
any tangible medium of expression.” 17 U.S.C. § 102(a); see also id. § 302(a).
That is, a work is copyrighted the moment it is created, regardless of whether
it has been registered or bears a copyright notice.
A “copyright” is the author’s legal entitlement to the exclusive rights granted
under 17 U.S.C. § 106. Neither a copyright registration nor a registration
certificate is equivalent to a copyright. A registration certificate signifies the
Copyright Office’s decision to register the work, which is a limited administrative
decision that the work is copyrightable subject matter and that the application
is proper. See 17 U.S.C. § 408(a). Although not dispositive of whether a valid
copyright exists, the Copyright Office’s decision to issue a registration and
the certificate of registration can, however, have legal significance at trial. See
Sections B.1.d.-e. of this Chapter.
c. “Preregistration” of Certain Types of Works
The Family Entertainment and Copyright Act of 2005 created a new
procedure, known as “preregistration,” intended to address some problems
with works that are pirated before their lawful publication or official release by
the copyright owner. See Pub. L. No. 109-9 § 104, 119 Stat. 218, 221-22 (Apr.
27, 2005); 17 U.S.C. §§ 408(f ) (setting forth basic rules for preregistration),
411(a) (preregistration or registration necessary to institute infringement action
in most cases); 37 C.F.R. § 202.16 (Copyright Office rules for preregistration).
Preregistration is available for certain types of work judged by the Copyright
Office to be especially vulnerable to piracy before their lawful release or
20

Prosecuting Intellectual Property Crimes

publication, including movies, musical compositions and sound recordings,
computer software and video games, literary works, and “advertising and
marketing photographs.” See id. A copyright owner can preregister these
types of works if they are unpublished, but “being prepared for commercial
distribution,” meaning that the copyright owner has a reasonable expectation
that the work will be commercially distributed to the public, and the work,
if not yet finished, has at least been commenced. Id. § 202.16(b)(2). Upon
submission of an application and fee, the Copyright Office will undertake a
limited review of the work, and if approved, it will preregister the work and
issue a certificate, much as in the case of copyright registration. Id. § 202.16(c).
But preregistration is not a complete substitute for registration. Although
preregistration offers some benefits to copyright owners, preregistration
involves only a cursory review by the Copyright Office and consequently
preregistration, unlike registration, will not serve as prima facie evidence of the
validity or ownership of a copyright. 37 C.F.R. § 202.16(c)(6), (7), (13). See
Sections B.1.d.-e. of this Chapter.
d. Significance of Registration
As noted above, a creative work can be protected by copyright even before,
or absent, registration of the work with the Copyright Office. Many foreign
works of authorship are never registered with the United States Copyright
Office, nor are most unpublished works by domestic authors ever registered,
and yet such works may still enjoy copyright protection under U.S. law.
However, registration of a copyright may be necessary for a copyright owner to
enforce such protections civilly. Specifically, U.S. law requires copyright owners
to register their works with the Copyright Office as a prerequisite to filing a
lawsuit for infringement. Section 411 of Title 17 provides that “no civil action
for infringement of the copyright in any United States work shall be instituted
until preregistration or registration of the copyright claim has been made in
accordance with this title.” § 411(a) (emphasis added). Note that § 411 applies
only to “United States work[s],” meaning works first published domestically, or
works created by U.S. nationals or “habitual residents.” See 17 U.S.C. §§ 101,
411(a). Thus, before a civil lawsuit for infringement of a United States work
can be initiated, the work must be registered, although registration is not
a prerequisite to filing a law suit for infringement of a foreign work (nor is
registration a prerequisite for criminal enforcement, as discussed below).

II. Criminal Copyright Infringement

21

Some aspects of the § 411 registration requirement are the subject of
disagreements among the federal courts. For example, courts continue to
disagree over which specific steps § 411 requires to be satisfied prior to the
filing of a lawsuit. Although some courts require only that a copyright owner
submit a facially valid application and required fee to the Copyright Office
before filing suit, most conclude that § 411’s language (that a registration must
be “made” prior to suit) means the Copyright Office must have either accepted
and approved the registration, or formally rejected it as invalid, prior to the
filing of a lawsuit. Compare Lakedreams v. Taylor, 932 F.2d 1103, 1108 (5th
Cir. 1991) (Section 411 requires only the filing of an application before suit
may be filed); Apple Barrel Prods., Inc. v. Beard, 730 F.2d 384, 386-87 (5th Cir.
1984) (same); Prunte v. Universal Music Group, 484 F. Supp. 2d 32 (D.D.C.
2007) (same) with La Resolana Architects, PA v. Clay Realtors Angel Fire, 416
F.3d 1195 (10th Cir. 2005) (Section 411 requires Copyright Office to issue
or reject registration prior to filing of lawsuit), abrogated on other grounds by
Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237 (2010); M.G.B. Homes, Inc. v.
Ameron Homes, Inc., 903 F.2d 1486, 1488 (11th Cir. 1990); Mays & Assocs. Inc.
v. Euler, Inc., 370 F. Supp. 2d 362, 368 (D. Md. 2005) (Section 411 requires
registration as opposed to mere application for copyright); see also Vacheron &
Constantin-Le Coultre Watches, Inc. v. Benrus Watch Co., 260 F.2d 637, 64041 (2d Cir. 1958) (filing of suit under pre-1976 law requires that registration
process be complete).
The Supreme Court in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237
(2010) resolved another circuit split over the issue of whether registration is,
on the one hand, merely a procedural requirement or case-processing rule, or
whether, on the other hand, is necessary to confer subject-matter jurisdiction
in federal court. Reversing the Second Circuit, the Supreme Court held that
although registration is a precondition to filing an action in district court,
failure to comply with § 411 does not deprive a federal court of subject matter
jurisdiction to hear claims involving unregistered works. The Court, however,
declined to address whether registration is a threshold mandatory requirement
that district courts may or should enforce by dismissing sua sponte cases
involving unregistered works.
i. Registration Not a Prerequisite for Criminal Prosecution
Copyright registration is not a prerequisite to a criminal prosecution for
copyright infringement. The Prioritizing Resources and Organization for
Intellectual Property Act of 2008 (PRO-IP) Act of 2008, Pub. L. No. 110-403,
22

Prosecuting Intellectual Property Crimes

122 Stat. 4256 (2008) clarified this point by amending § 411 to add the word
“civil.” Notwithstanding that copyright registration is not a requirement for
initiating a criminal prosecution, copyright registration is nevertheless helpful
in proving certain elements of the offense at trial and avoiding a number of
practical challenges that may result from a lack of registration. See Section
B.2.b. of this Chapter. For example, introducing certificates of registration at
trial is often the simplest way to prove a copyright’s validity and ownership.
Even though registration is not legally required, without it prosecutors will
have to prove these elements “from scratch” through testimony and other
evidence. See Section B.1.e. of this Chapter. Therefore, to the extent possible,
prosecutors should try to ensure that any copyrights on which a prosecution is
sought are registered or “preregistered” before the prosecution is commenced.
If registration is needed for pending litigation, it can often be expedited for
completion within a week. See U.S. Copyright Office, Information Circular
10, “Special Handling,” available at http://www.copyright.gov/circs/circ10.
pdf.
Copyright certificates or completed registrations are useful prior to trial,
but not as critical. So long as the government can present sufficient evidence
of a valid copyright to satisfy a probable cause standard, a lack of a copyright
registration or certificate should not be an impediment to obtaining search
warrants, grand jury subpoenas, and even indictments.
When registration is lacking (which may merely be an oversight, or
could reflect a conscious choice to delay registration until a work is ready for
publication) prosecutors should bear in mind the circumstances surrounding
the absence of registration, which may militate against the choice to prosecute.
For example, a copyright-holder’s refusal to register his copyright may
indicate—or be interpreted as—his intent to allow others to copy the work. If,
on the other hand, registration has been sought from the Copyright Office and
refused, the refusal may indicate a weak claim of copyrightability or ownership.
e. Proof of Copyright at Trial
At trial, the government typically proves the existence of a valid copyright
by introducing a certificate of registration. The certificate’s probative value
depends on whether the work was registered earlier or later than five years after
the work was published. A certificate of registration “made before or within five
years after first publication of the work shall constitute prima facie evidence of
the validity of the copyright.” 17 U.S.C. § 410(c) (emphasis added); see Gaylord
II. Criminal Copyright Infringement

23

v. United States, 595 F.3d 1364, 1376 (Fed. Cir. 2010); United States v. Taxe,
540 F.2d 961, 966 (9th Cir. 1976); United States v. Moore, 604 F.2d 1228, 1234
(9th Cir. 1979); see also 17 U.S.C. § 101 (“‘Publication’” is the distribution of
copies or phonorecords of a work to the public by sale or other transfer of
ownership, or by rental, lease, or lending. The offering to distribute copies or
phonorecords to a group of persons for purposes of further distribution, public
performance, or public display, constitutes publication. A public performance
or display of a work does not of itself constitute publication.”).
Once the certificate of registration is introduced by the government and
accepted as authentic by the court, the burden shifts to the defendant to prove
that the copyright is not valid or that the registration was obtained fraudulently.
See, e.g., Gaylord, 595 F.3d at 1376; Autoskill, Inc. v. Nat’l Educ. Support Sys.,
Inc., 994 F.2d 1476, 1487 (10th Cir. 1993), overruled on other grounds by TW
Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011).
Then, the prosecutor may rebut with evidence showing that the certificate
is genuine, the registration was properly obtained, or that the copyright is
otherwise valid. If the work was registered more than five years after its first
publication, the certificate’s probative value is left to the court’s discretion.
See 17 U.S.C. § 410(c); Religious Tech. Ctr. v. Netcom On-Line Comm. Servs.,
Inc., 923 F. Supp. 1231, 1241 (N.D. Cal. 1995); Pan-American Products &
Holdings, LLC v. R.T.G. Furniture Corp., 825 F. Supp. 2d 664, 702 (M.D.N.C.
2011); Koontz v. Jaffarian, 617 F. Supp. 1108, 1111-12 (E.D. Va. 1985), aff’d,
787 F.2d 906 (4th Cir. 1986).
Certificates of registration should be obtained from the victim. The
Copyright Office has an online database of certifications and can provide
certified copies. See http://www.copyright.gov/records/; U.S. Copyright Office,
Information Circular No. 6, “Obtaining Access to and Copies of Copyright
Office Records and Deposits,” available at http://www.copyright.gov/circs/
circ06.pdf. But copyright owners may be able to respond faster, since they
should have retained their registration certificates in the ordinary course of
their business.
Although producing a copyright certificate is the preferred method of
proving validity and ownership of a valid copyright, it is not the only way to
do so. The parties can stipulate to the copyright’s validity. E.g., United States
v. Beltran, 503 F.3d 1, 2 (1st Cir. 2007); United States v. Sherman, 576 F.2d
292, 296 (10th Cir. 1978). Courts may also take judicial notice of a work’s
copyright registration. Island Software and Computer Service, Inc. v. Microsoft
24

Prosecuting Intellectual Property Crimes

Corp., 413 F.3d 257, 261 (2d Cir. 2005); see also United States v. Hux, 940
F.2d 314, 318 (8th Cir. 1991) (allowing introduction of copyright certificates
the morning of trial, but noting other evidence previously given to defense
provided ample basis for plaintiff to establish, and defendant to challenge,
existence of copyright), overruled on other grounds by United States v. Davis,
978 F.2d 415 (8th Cir. 1992); La Resolana Architects, PA, 416 F.3d at 1208;
United States v. Backer, 134 F.2d 533, 535-36 (2d Cir. 1943) (allowing civil
proceeding where Copyright Office had provided plaintiff with certificate due
to error; technical irregularities in the registration process should not invalidate
an otherwise proper registration). For instance, the government could introduce
testimony regarding the copyright owner’s creation and fixation of the work,
evidence that the work is original, and that it was not a work for hire created
for someone else.
In cases where the validity of a copyright is likely to be contested, prosecutors
may wish to gather additional evidence of the validity of the copyright, such as
the type described above. Even where copyright in a work has been registered
within five years of publication thus giving rise to a presumption of validity,
some courts have cautioned against placing too much weight on registrations as
proof of a valid copyright, due to the cursory nature of the copyright registration
process. See Universal Furniture Int’l, Inc. v. Collezione Europa USA, Inc., 618
F.3d 417, 428 (4th Cir. 2010); Charles W. Ross Builder, Inc. v. Olsen Fine Home
Bldg., LLC, 827 F. Supp. 2d 607, 616 (E.D. Va. 2011); Pan-American Products,
825 F. Supp. 2d at 702.
f. Copyright Notice
Particularly in cases involving older works, prosecutors should confirm
that copyright in a work has not lapsed. Copyright protection expires at the
end of the statutory term, which will vary depending on the date of creation,
publication, or the author’s death. However, for works first published prior
to March 1, 1989, copyright may also have lapsed if the work lacked a valid
copyright notice upon its first publication. For works published on or after
March 1, 1989, their publication without a copyright notice is of no moment.
See Berne Convention Implementation Act of 1988 (“BCIA”), Pub. L. No.
100-568, 102 Stat. 2853 (enacted October 31, 1988). For works published
before March 1, 1989, however, initial publication without a copyright notice
would have extinguished their copyright and consigned them to the public
domain. See 17 U.S.C. §§ 10, 19 et seq. (1909 Act); 17 U.S.C. § 405(a)(2)
(1976 Act); see also 2 Nimmer on Copyright §§ 7.02[C][1]-[3], at 7-16 to 7-17.
II. Criminal Copyright Infringement

25

Generally speaking, the form of copyright notice generally contains the
symbol ©, the word “copyright,” and the name of the copyright owner (e.g.,
Copyright © 2011 by Jane Doe).
As noted in the following Section, the presence of a copyright notice on an
infringed work may be useful in proving a defendant’s willfulness.
2. The Defendant Acted “Willfully”
a. Legal Standard
To establish criminal intent, the government must prove that the defendant
infringed the copyright willfully. See 17 U.S.C. § 506(a) (“Any person who
willfully infringes a copyright shall be punished ....”) (emphasis added).
“[E]vidence of reproduction or distribution of a copyrighted work, by itself,
shall not be sufficient to establish willful infringement.” 17 U.S.C. § 506(a)(2).
This was intended to require proof of more than general intent and to ensure
that, for instance, “an educator who in good faith believes that he or she is
engaging in a fair use of copyrighted material could not be prosecuted under
the bill.” 143 Cong. Rec. 26,420-21 (1997).
The Supreme Court has recognized that “willful ... is a word of many
meanings, its construction often being influenced by its context.” Spies v.
United States, 317 U.S. 492, 497 (1943). This was reflected in Congressional
debate over the NET Act amendments to the Copyright Act. Senator Hatch,
the Chairman of the Senate Judiciary Committee, advocated that in copyright
crimes “‘willful’ ought to mean the intent to violate a known legal duty,” 143
Cong. Rec. 26,420 (1997), because a lower mens rea could cause “the net” of
criminal sanctions “[to] be cast too widely.” Id. Senator Hatch cited several
cases in which the Supreme Court had construed “willfulness” in this fashion
when the substantive law was complex, such as Cheek v. United States, 498 U.S.
192 (1991), in which the Court held that the general principle that “ignorance
of the law or a mistake of law is no defense to criminal prosecution,” must
yield given the complexity of federal criminal tax statutes. In other words, the
defendant’s good-faith misunderstanding of the legal duties imposed on him
by the tax laws would negate a finding of willfulness. Id. at 199. This reasoning
has been applied in other contexts as well. E.g., Ratzlaf v. United States, 510
U.S. 135 (1994) (failure to report cash transactions in excess of $10,000).
In debate on the corresponding House bill, two of the bill’s sponsors,
Representatives Goodlatte and Coble, made comments suggesting that
26

Prosecuting Intellectual Property Crimes

the “willfulness” may be met with something less than direct proof that the
defendant was actually aware he was violating the law:
It should be emphasized that proof of the defendant’s state of
mind is not required. The Government should not be required
to prove that the defendant was familiar with the criminal
copyright statute or violated it intentionally. Particularly in
cases of clear infringement, the willfulness standard should be
satisfied if there is adequate proof that the defendant acted with
reckless disregard of the rights of the copyright holder. In such
circumstances, a proclaimed ignorance of the law should not
allow the infringer to escape conviction. Willfulness is often
established by circumstantial evidence, and may be inferred
from the facts and circumstances of each case.
143 Cong. Rec. 24,325 (1997) (statement of Rep. Coble); see also id. at 24,326
(statement of Rep. Goodlatte, repeating passage above verbatim, with the
addition of the word “also” after “be” in the first sentence). Although the first
sentence of the passage quoted above might suggest Representatives Coble and
Goodlatte viewed the criminal copyright offense as a strict liability crime, the
context of their statements suggests that both Congressmen meant, not that the
criminal copyright offense required no proof of a defendant’s intent or state of
mind, but rather that the “willfulness” standard did not require direct evidence
of mens rea, and that a “willful” state of mind could be proven circumstantially
(or, in their view, through affirmative proof of reckless disregard for the rights
of copyright holders).
Although the statements of individual members reflect somewhat differing
conceptions of the “willfulness” standard, both houses of Congress indicated
their intent not to affect the existing “willfulness” standard applicable to
copyright crime, other than to clarify that evidence of reproduction or
distribution, by itself, was insufficient to prove willfulness. See 17 U.S.C. §
506(a)(2); Statement of Rep. Coble, 143 Cong. Rec. 24,325 (1997) (“Evidence
of reproductions or distributions, including those made electronically on behalf
of third parties, would not, by itself, be sufficient to establish willfulness under
the NET Act.”). Otherwise, Congress left the term’s definition to the courts.
See 143 Cong. Rec. 26,422 (remarks of Sen. Leahy) (“This clarification does
not change the current interpretation of the word ‘willful’ as developed by
case law and as applied by the Department of Justice, nor does it change the
definition of ‘willful’ as it is used elsewhere in the Copyright Act.”); H.R. Rep.
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27

No. 102-997, at 4-5 (1992), reprinted in 1992 U.S.C.C.A.N. 3569, 3572-73
(discussion of Copyright Felony Act, Pub. L. No. 102-561, 106 Stat. 4233
(1992)).
Most courts that have interpreted “willfulness” in criminal copyright
cases have adopted the more stringent standard articulated by Senator Hatch:
the intentional violation of a known legal duty. See United States v. Moran,
757 F. Supp. 1046, 1049 (D. Neb. 1991) (holding that willful infringement
means a “‘voluntary, intentional violation of a known legal duty’”) (quoting
Cheek v. United States, 498 U.S. 192, 200 (1991)); see also United States v.
Sherman, 576 F.2d 292, 297 (10th Cir. 1978) (upholding jury’s verdict because
jury “apparently either disbelieved the genuineness of this contract [which
defendants claimed had licensed their conduct], or believed that defendants
were not innocent of knowledge that the tapes provided were copies from the
original artists’ records”, and noting that “willfulness” required proof of specific
intent, but without clarifying whether that required proof that the defendants
knew their conduct was unlawful, or merely knowledge that they were selling
copies); cf. United States v. Heilman, 614 F.2d 1133, 1138 (7th Cir. 1980)
(holding that the government had proved willfulness because the defendant
“chose to persist in conduct which he knew had ‘a high likelihood of being held
by a court of competent jurisdiction to be a violation of a criminal statute’”)
(quoting trial court); United States v. Cross, 816 F.2d 297, 300-01 (7th Cir.
1987) (approving without comment a jury instruction that an act is willful
when it is committed “voluntarily, with knowledge that it was prohibited by
law, and with the purpose of violating the law, and not by mistake, accident or in
good faith,” and affirming conviction because the record amply demonstrated
that the defendant “knowingly and voluntarily violated the copyright laws”);
see also Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am.Crim.
L.Rev. 849, 877-89 (2011).
A minority of courts in criminal copyright cases have suggested that a lower
standard of “willfulness” may support a criminal prosecution. United States v.
Backer, 134 F.2d 533, 535 (2d Cir. 1943) is frequently cited as applying the
lower standard, that of merely having the intent to carry out the activities of
infringement without knowledge that they constituted infringement. In that
case, the defendant had arranged for a manufacturer to duplicate a copyrighted
figurine as closely as possible without, in the defendant’s words, “copyright
trouble.” Id. at 535. The Second Circuit found the evidence sufficient to
support willful infringement, noting there could not “be any fair doubt that
28

Prosecuting Intellectual Property Crimes

the appellant deliberately had the copies made and deliberately sold them for
profit.” Id. Some commentators have characterized Backer as representing a
circuit split. E.g., 4 Nimmer on Copyright § 15.01[A][2] at 15-6 (opining that
“[T]he better view construes the ‘willfulness’ required for criminal copyright
infringement as a ‘voluntary, intentional violation of a known legal duty.’”);
Julie L. Ross, A Generation of Racketeers? Eliminating Civil RICO Liability for
Copyright Infringement, 13 Vand. J. Ent. & Tech. L. 55, 85 (2010); Mary Jane
Saunders, Criminal Copyright Infringement and the Copyright Felony Act, 71
Denv. U. L. Rev. 671, 673 (1994).
It is not clear, however, that Backer represents an actual circuit split. The
case can also be read as holding the defendant’s mention of “copyright trouble”
to be sufficient evidence of his knowledge of a legal duty not to infringe.
Moreover, more recent civil copyright cases suggest that the Second Circuit
interprets willfulness to require either actual knowledge that the infringement
violated the law, or perhaps “constructive knowledge” shown by reckless
disregard for whether the conduct violated copyright. See Twin Peaks Prods.,
Inc. v. Publ’ns Int’l, Ltd., 996 F.2d 1366, 1382 (2d Cir. 1993) (holding standard
for willfulness to be “whether the defendant had knowledge that its conduct
represented infringement or perhaps recklessly disregarded the possibility”);
Fitzgerald Publ’g Co. v. Baylor Publ’g Co., 807 F.2d 1110, 1115 (2d Cir. 1986)
(same); Lydia Pallas Loren, Digitization, Commodification, Criminalization:
The Evolution of Criminal Copyright Infringement and The Importance of the
Willfulness Requirement, 77 Wash. U. L.Q. 835, 879 (1999) (arguing that
the Second Circuit is actually not in disagreement with other circuits). This
approach is consistent with the Seventh Circuit’s ruling in United States v.
Heilman, a criminal copyright case holding that the government proved
willfulness because the defendant “chose to persist in conduct which he knew
had a high likelihood of being held by a court of competent jurisdiction to be a
violation of a criminal statute.” 614 F.2d 1133, 1138 (7th Cir. 1980) (citation
and internal quotation marks omitted).
The majority rule in criminal copyright cases for a higher standard of
willfulness is also generally consistent with civil copyright cases. The issue arises
in civil cases when plaintiffs attempt to recover increased statutory damages,
which are available only for willful infringement. 17 U.S.C. § 504(c). Whereas
criminal willfulness requires a specific intent to violate “a known legal duty,”
civil cases require a more specific intent to violate copyright laws; that is that
willfulness is not just an intent to copy, but rather an intent to infringe. 4
II. Criminal Copyright Infringement

29

Nimmer on Copyright § 14.04[B][3][a]; e.g., BC Technical, Inc. v. Ensil Int’l
Corp., 464 Fed. Appx. 689 (10th Cir. 2012) (“willful” infringement in civil
case requires specific intent to violate copyright laws - also noting without
analysis that criminal cases require an intent to violate copyright laws, but
relying, in part, on criminal cases and authorities referring to “known legal
duty”); Twin Peaks Prods., Inc., 996 F.2d at 1382; Danjaq, L.L.C. v. Sony Corp.,
263 F.3d 942, 959 (9th Cir. 2001); RSO Records, Inc. v. Peri, 596 F. Supp. 849,
859 (S.D.N.Y. 1984) (holding, in civil action, that defendant’s earlier guilty
plea to two counts of criminal copyright infringement sufficed to show he
knew similar conduct was unlawful). Given that willfulness requires an intent
to infringe, or at least constructive knowledge of infringement plus a reckless
disregard of the victim’s rights, a finding of willfulness may be precluded if the
defendant acted with a good-faith belief that he was not infringing. See Section
B.2.b. of this Chapter.
b. Proof at Trial
“Willfulness is rarely provable by direct evidence, and most often can
be proven only by inference from the evidence introduced.” United States v.
Sherman, 576 F.2d at 297. Certain types of evidence in criminal copyright
cases have been found particularly relevant to proving the defendant’s intent:
•

30

The defendant’s acknowledgment that his or her conduct was
improper. See United States v. Manzer, 69 F.3d 222, 227-28 (8th Cir.
1995) (defendant’s admission in a published interview that selling
or giving away copyrighted computer chips was illegal, and software
program and packaging bore copyright notice); United States v. Drebin,
557 F.2d 1316, 1324 (9th Cir. 1977) (defendant’s warning customers
of FBI investigation and recommending that customers “really be
careful”); United States v. Hux, 940 F.2d 314, 319 (8th Cir. 1991)
(defendant’s admission to FBI that he knew modifying copyrighted
descrambler chips was infringement), overruled on other grounds by
United States v. Davis, 978 F.2d 415 (8th Cir. 1992); United States v.
Taxe, 540 F.2d 961, 968-69 (9th Cir. 1976) (defendant’s solicitation of
attorney to lie about legality of tapes); United States v. Kim, 307 Fed.
Appx. 324, 326 (11th Cir. 2009) (statements by CEO to buyers from
which CEO’s willful intent and awareness of unlawfulness “reasonably
could be inferred”).

Prosecuting Intellectual Property Crimes

•

Actual notice to the defendant that his own conduct was illegal.
See, e.g., United States v. Cross, 816 F.2d 297, 300-01 (7th Cir. 1987)
(defendant’s sale of pirated videotapes after FBI agents told him that
selling and renting unauthorized tapes was illegal). Cease and desist
letters from rights owners to the defendant can also be useful in
establishing willfulness.

•

Notice to the defendant that another person’s similar conduct
constituted infringement. See United States v. Heilman, 614 F.2d
1133, 1138 (7th Cir. 1980) (defendant’s awareness that government
was prosecuting individuals engaged in conduct similar to his own
and that conduct had been ruled illegal by four federal and three state
courts); United States v. Kim, 307 Fed. Appx. 324 (11th Cir. 2009)
(not error for court to find defendant acted willfully where there was
evidence that defendant’s cousin, a police officer, had advised his
conduct was illegal and defendant had previously been convicted of
trademark counterfeiting).

•

The defendant’s past manufacture and distribution of infringing
items. See United States v. Kim, 307 Fed. Appx. 324 (11th Cir. 2009)
(not error for court to find defendant acted willfully where defendant
had previously been convicted of trademark counterfeiting, and had
been advised by police officer relative that his conduct was illegal);
United States v. Whetzel, 589 F.2d 707, 712 (D.C. Cir. 1978), abrogated
on other grounds, Dowling v. United States, 473 U.S. 207 (1985).

•

The defendant’s admission to copying, in conjunction with other
circumstantial evidence indicating defendant knew copies were
unauthorized. United States v. Dadamuratov, 340 Fed. Appx. 540
(11th Cir. 2009) (admission of copying, along with circumstantial
evidence of infringement and knowledge, sufficient to prove willful
infringement).

•

The defendant’s statement to Postal Service employee that others
were selling illegal DVDs in the area. United States v. Draper, No.
7-05 CR 0004, 2005 WL 2746665, at *2 (W.D. Va. Oct. 24, 2005).

•

The defendant’s frivolous or bad-faith claim of compliance with
copyright laws, which demonstrates knowledge of copyright laws.
Cf. United States v. Gardner, 860 F.2d 1391, 1396 (7th Cir. 1988)
(holding that when seller of “black boxes” for receiving unauthorized

II. Criminal Copyright Infringement

31

cable TV gave buyers a “Notice of Warning” that disclaimed liability
for illegal uses, it was “establish[ed] that he was well aware that his
actions were unlawful”).
•

The defendant admission to infringement, but with claim that he
believed erroneously that criminal offense required financial gain.
In United States v. Dove, No. 2:07CR00015, 2008 WL 3979467 (W.D.
Va. Aug. 25, 2008), the defendant admitted to participating in scheme
to produce and distribute infringing files online, but claimed he had
not made any money in connection with the scheme and that he
erroneously believed that infringement was not criminal in the absence
of financial gain. The court permitted a “willful blindness” instruction
at trial.

Conversely, other factors may be relevant to finding an absence of
“willfulness”:

32

•

Evidence of the defendant’s good-faith belief that his conduct was
lawful, coupled with rational attempts to comply with the copyright
law as understood by the defendant. Compare United States v. Moran,
757 F. Supp. 1046, 1051-53 (D. Neb. 1991) (court in bench trial
finding police officer who operated a “mom-and-pop” video rental
business not guilty, because he made single copies of lawfully purchased
videos and rented the copies only to prevent vandalism of original
tapes, and because his activities were “conducted in such a way as not
to maximize profits, which one assumes would have been his purpose
if he had acted willfully”) with United States v. Sherman, 576 F.2d 292,
297 (10th Cir. 1978) (affirming conviction of defendants who claimed
a good-faith belief that pirated tapes they manufactured and sold were
“sound-a-likes,” and thus noninfringing). See also Danjaq, L.L.C. v.
Sony Corp., 263 F.3d 942, 959 (9th Cir. 2001) (stating that one who
has been notified that his conduct constitutes copyright infringement,
but who reasonably and in good faith believes the contrary, has not
acted willfully) (citing 4 Nimmer on Copyright § 14.04).

•

Acting pursuant to legal counsel, even if the advice was erroneous,
if the defendant disclosed all relevant circumstances to his attorney
and followed the attorney’s advice in good faith. See 4 Nimmer on
Copyright § 14.04[B][3][a]; David M. Nissman, Proving Federal Crimes
§§ 27.07-.08 (Corpus Juris Publishing 2004).
Prosecuting Intellectual Property Crimes

Possible alternative charges that require lower mens rea standards are
discussed in Section F. of this Chapter.
3. Infringement of the Copyright
The next element is that the defendant infringed a copyright. See 17
U.S.C. § 506(a). “Infringement” refers to the violation of one or more of the
exclusive rights granted to a copyright owner at 17 U.S.C. § 106. Infringement
is implicitly defined in 17 U.S.C. § 501(a):
Anyone who violates any of the exclusive rights of the copyright
owner as provided by [17 U.S.C. §§ 106-122] or of the author
as provided in [17 U.S.C. § 106A(a)], or who imports copies or
phonorecords into the United States in violation of [17 U.S.C.
§ 602], is an infringer of the copyright.
Consequently, infringement may include more than violation of the rights
enumerated in § 106 (and also include violations of the rights to exclude
imports under § 602, or the rights of certain authors to attribution and integrity
defined in § 106A(a)), and at the same time, may not extend to all violations of
the rights in § 106 (because the rights enumerated in § 106 are “subject to [the
limitations of ] §§ 107 through 122”). For purposes of criminal enforcement,
however, the relevant types of infringement are those enumerated in § 106. (An
author’s rights to attribution and integrity under § 106A(a) are not enforceable
criminally. See 18 U.S.C. § 506(f ).)
Section 106 of Title 17 sets out the copyright owner’s exclusive rights.
These rights consist of the rights “to do and to authorize” the following:
• to reproduce a work in copies or phonorecords, § 106(1);
• to prepare derivative works, § 106(2);
• to distribute copies or phonorecords of the work to the public, § 106(3);
• to perform the work publicly (for certain types of works), § 106(4),
(6);
• to display a work publicly (for certain types of works), § 106(5).
Sections 107 through 122 limit these rights, the most notable limitations
for criminal enforcement purposes are the public’s right to make “fair use”
of a work without authorization, the first sale doctrine, limitations on rental
of software and musical sound recordings, and exceptions for installing and
backing up software, all of which are discussed in detail in Section C. of this
Chapter.
II. Criminal Copyright Infringement

33

Felony penalties apply only to infringement of the reproduction or
distribution rights. See 17 U.S.C. §§ 506(a), 106(1), (3). Specifically, felony
penalties apply only if the infringement involved either “reproduction
or distribution” of a minimum number and value of works, see 17 U.S.C.
§ 506(a)(1)(A) and 18 U.S.C. § 2319(b)(1); 17 U.S.C. § 506(a)(1)(B) and
18 U.S.C. § 2319(c)(1), or if the infringement involved “distribution of a
work being prepared for commercial distribution,” by making it available on
a publicly-accessible computer network. See 17 U.S.C. § 506(a)(1)(C); 18
U.S.C. § 2319(d)(1). See also Section B.4.c. of this Chapter.
Misdemeanor penalties apply to infringement by reproduction or
distribution that meet a lower numeric and monetary threshold—one or more
copies of one or more copyrighted works, having a total retail value of more than
$1,000. See 17 U.S.C. § 506(a)(1)(B), 18 U.S.C. § 2319(c)(3). Misdemeanor
penalties also cover willful infringement of any of the exclusive rights under
§ 106, if committed for commercial advantage or private financial gain. See 17
U.S.C. § 506(a)(1)(A), 18 U.S.C. § 2319(b)(3), and the discussion in Section
B.4. of this Chapter.
Criminal prosecutions have historically focused on reproduction and
distribution because these have generally been the most serious infringements,
and these infringements incur the most significant penalties under the current
criminal law. However, willful infringement of other exclusive rights may also be
sufficiently serious to warrant criminal prosecution, particularly as advances in
technology lead greater use of technologies that implicate other exclusive rights,
such as the use of Internet “streaming” to disseminate copyrighted material
(both legitimately and illegimately). Where appropriate, the Department
can and should investigate and prosecute copyright misdemeanors for profitmotivated infringements of other rights, such as public performance, public
display, or derivative work.
a. Infringement by Reproduction or Distribution
Felony penalties are provided for willful infringement committed “by the
reproduction or distribution” of ten or more copies (or phonorecords) of one
or more copyrighted works, with a total retail value of $2,500 or more. There
are actually two separate combinations of statutory provisions that provide
felony penalties for this type of conduct.
Infringement committed with or without the purpose of commercial
advantage or private financial gain can fall under 17 U.S.C. § 506(a)(1)(B) if
34

Prosecuting Intellectual Property Crimes

the willful infringement was committed “by the reproduction or distribution,
including by electronic means, during any 180-day period, of 1 or more copies
or phonorecords of 1 or more copyrighted works, which have a total retail value
of more than $1000.” For these offenses, 18 U.S.C. § 2319(c)(1) provides
felony penalties “if the offense consists of the reproduction or distribution of
10 or more copies or phonorecords of 1 or more copyrighted works, which
have a total retail value of $2,500 or more.” The statutory maximum penalty is
3 years’ imprisonment, 6 for repeat offenders. See § 2319(c).
Infringement committed for commercial advantage or private financial
gain can also fall under 17 U.S.C. § 506(a)(1)(A), which is a felony if the
offense “consists of the reproduction or distribution, including by electronic
means, during any 180-day period, of at least 10 copies or phonorecords, of
1 or more copyrighted works, which have a total retail value of more than
$2,500.” 18 U.S.C. § 2319(b)(1). The statutory maximum penalty is 5 years’
imprisonment, or 10 for repeat offenders.
There is a slight variation in language between the two provisions that set
the $2,500 felony threshold: 18 U.S.C. § 2319(c)(1) requires a total retail
value of “$2,500 or more,” whereas § 2319(b)(1) requires “more than $2,500.”
It is unclear whether this variation was intentional.
In addition to the felony penalties discussed in the prior paragraphs, there
are also felony penalties in 17 U.S.C. § 506(a)(1)(C) for distribution over a
computer network accessible by the public. See Section B.3.b. of this Chapter.
The reproduction and distribution rights are set forth in 17 U.S.C. § 106(1)
(exclusive right “to reproduce the copyrighted work in copies or phonorecords”)
and § 106(3) (exclusive right “to distribute copies or phonorecords of the
copyrighted work to the public by sale or other transfer of ownership, or by
rental, lease, or lending”).
•

Definition of Copies and Phonorecords

The term “copies” is often used to refer generically to any material object in
which a copyrighted work has been fixed. However, the Copyright Act reserves
the term “copies” only for works other than sound recordings. “Copies” are
defined as “material objects, other than phonorecords, in which a work is fixed
by any method now known or later developed, and from which the work can
be perceived, reproduced, or otherwise communicated, either directly or with
the aid of a machine or device.” 17 U.S.C. § 101. “Phonorecords” are what
we think of as copies of sound recordings, and are defined as “material objects
II. Criminal Copyright Infringement

35

in which sounds, other than those accompanying a motion picture or other
audiovisual work, are fixed by any method now known or later developed,
and from which the sounds can be perceived, reproduced, or otherwise
communicated, either directly or with the aid of a machine or device.” Id.
Thus, examples of a “phonorecord” would include an audio tape or CD, or
an MP3 file. Examples of “copies” would include a book, a painting, a piece
of sheet music, or a sculpture. A software program on disc or in a file on a
computer, or a movie on DVD or videotape, would also be “copies,” even
though these objects might also include an audio sound track.
Somewhat confusingly, the terms “copy” and “phonorecord” can also
refer to the original object in which the copyrighted work was fixed, such as a
handwritten manuscript, or original studio tapes for a sound recording.
•

“Stealing”

Infringement is often referred to as a form of theft. For example, 18 U.S.C.
§ 2319 is located in a chapter of the criminal code entitled, “Stolen Property.”
Yet infringement is distinct from common-law theft, and requires no showing
that the defendant “stole” or deprived another person of a physical copy of a
work. Making additional copies of a book, movie, or other work may constitute
infringement, even if the defendant obtained his original source for additional
copies lawfully. Likewise, although publicly distributing copies that were stolen
from the copyright owner could constitute infringement, cf. United States v.
Chalupnik, 514 F.3d 748 (8th Cir. 2008) (discussing defendant’s criminal
copyright conviction for distribution of lawfully-produced CDs taken from
post office without authorization), it is not always necessary to show that copies
were “stolen” in order to show infringing distribution.
i. Reproduction
Reproduction encompasses a wide array of conduct, ranging from a
novelist’s plagiarizing substantial portions of someone else’s book or a musician’s
sampling several notes from a previously-recorded song, to using a computer
to “rip” an audio track into MP3 format or making a bit-for-bit copy of a
movie on DVD. In most criminal cases, infringing reproduction involves the
production of exact, or nearly-exact, duplicates through digital means, as with
computer programs, e-books, music or movies copied onto digital media (e.g.,
CDs, DVDs, hard drives). Copying need not be so blatant, literal, or complete
to qualify as infringement, but criminal cases rarely involve defendants who
have copied only a small portion of a copyrighted work. Disputes over whether
36

Prosecuting Intellectual Property Crimes

songs sound too similar, or whether a movie screenplay copies dialogue or
characters from an earlier screenplay, are generally best left to civil lawsuits.
Nevertheless, some cases of less-than-wholesale, verbatim copying of an entire
work may warrant criminal prosecution.
•

Proof of Infringement by Reproduction

The best evidence of infringement by reproduction is direct evidence that
the defendant copied the victim’s work, including, for example eyewitness
testimony, emails, or computer logs indicating the copying of particular discs
or files. Typically, criminal copyright cases will involve complete, verbatim
copying of many copyrighted works, and defendants are generally unlikely
to challenge this issue credibly. In fact, defendants often even advertise or
otherwise mark the infringing copies as being copies. However, when the
copies alleged to be infringing are not essentially identical to the original work,
prosecutors may need to prove infringement in greater depth.
Direct evidence of copying is best, but circumstantial evidence may suffice.
The circumstantial test is whether (1) the defendant had access to the copyrighted
work and (2) that defendant’s work is “substantially” or “probatively” similar to
the copyrighted material. See Taylor Corp. v. Four Seasons Greetings, LLC, 403
F.3d 958 (8th Cir. 2005); Dam Things from Denmark v. Russ Berrie & Co., 290
F.3d 548, 562 (3d Cir. 2002); Kepner-Tregoe, Inc. v. Leadership Software, Inc.,
12 F.3d 527, 532 (5th Cir. 1994).
The test of “substantial” or “probative similarity” is whether, considering
the two works as a whole, and including both the copyrightable elements and
the uncopyrightable ones (such as basic ideas or public-domain expressions
that are not eligible for copyright), a reasonable person would conclude that
the defendant had actually copied the work from the original. See Positive Black
Talk Inc. v. Cash Money Records, Inc., 394 F.3d 357, 370 n.9 (5th Cir. 2004),
abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237
(2010); McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 318-19 (9th Cir.
1987), disagreed with on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517
(1994); Atari, Inc. v. North American Philips Consumer Elec. Corp., 672 F.2d
607, 614 (7th Cir. 1982). This standard focuses on the works’ similarities rather
than their differences. Cf. United States v. Kim, 307 Fed. Appx. 324 (11th Cir.
2009) (holding comparison of similarities in district court not erroneous, and
rejecting defendant’s arguments on appeal that emphasized several differences
between infringing copies and originals). Thus, “[i]t is enough that substantial
II. Criminal Copyright Infringement

37

parts [of a copyrighted work] were lifted; no plagiarist can excuse the wrong
by showing how much of his work he did not pirate.” United States v. O’Reilly,
794 F.2d 613, 615 (11th Cir. 1986) (affirming conviction for infringement of
copyright in video games where approximately 70% of defendant’s code was
identical to copyrighted original) (quoting Sheldon v. Metro-Goldwyn Pictures
Corp., 81 F.2d 49, 56 (2d Cir. 1936) (L. Hand, J.)).
Note that this test is designed to determine whether copying occurred,
not necessarily whether that copying constituted infringement. If the court
determines that actual copying has occurred, only then does it assess whether
the copying was substantial enough to constitute infringement. Unfortunately,
many courts also refer to this test as one of “substantial similarity,” which
can lead to confusion. See, e.g., Sid & Marty Krofft Television Prods., Inc. v.
McDonald’s Corp., 562 F.2d 1157, 1164-65 (9th Cir. 1977) (referring to the test
of whether copying occurred as an “extrinsic” test of substantial similarity, while
calling the test of whether infringement occurred, i.e., whether copyrightable
elements were copied, an “intrinsic” test of substantial similarity). To avoid this
confusion, many courts prefer to use the term “probative” similarities to show
“actual copying,” and “substantial similarity” to show “actionable copying.” See
Positive Black Talk Inc., 394 F.3d at 370; Dam Things from Denmark, 290 F.3d
at 562 & n. 19.
If the copyrighted work and the defendant’s work are “strikingly similar,”
the first element of access may be presumed (at least in civil copyright cases),
especially when the copyrighted work was widely available. See, e.g., Playboy
Enters. v. Frena, 839 F. Supp. 1552, 1556 (M.D. Fla. 1993) (holding proof
of access unnecessary when defendant made “essentially exact” copies of
copyrighted photos that appeared in nationally-circulated magazine); Bright
Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177 (S.D.N.Y 1976)
(access may be presumed when a copyrighted work is widely available)
In practice, the government demonstrates “substantial” or “probative”
similarity, as well as infringement, by comparing the suspect copy side-byside against an authentic original. Although ideally, this comparison can be
performed against the original maintained on file at the Register of Copyrights
(if available), it is not absolutely necessary—an authenticated duplicate of the
original work will suffice. See O’Reilly, 794 F.2d at 615; United States v. Shabazz,
724 F.2d 1536, 1539 (11th Cir. 1984). Victims may assist the government with
these comparisons. See Chapter X of this Manual; cf. United States v. Sherman,
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Prosecuting Intellectual Property Crimes

576 F.2d 292, 295 (10th Cir. 1978) (mentioning that suspected pirated tapes
were checked by record company before search warrant issued).
•

Statutory Exceptions for Reproduction

As noted above, copyright owners’ rights are limited in 17 U.S.C. §§ 107122. Several of these provisions particularly limit the reproduction right,
including § 107 (“fair use”), § 108 (certain copying by libraries and archives),
§ 115 (compulsory license for making phonorecords of musical works), and
§ 117 (certain limited copying of software). See Section C. of this Chapter.
ii. Distribution
Section 106(3) of Title 17 grants copyright owners the exclusive right “to
distribute copies or phonorecords of the copyrighted work to the public by
sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C.
§ 106(3). The distribution right is implicated by a wide variety of conduct,
such as the sale of books at a bookstore, used CDs at a garage sale, and pirated
DVDs at a flea market; the lending of books by a library; and transferring
pirated software to other users on the Internet without financial motive.
Distribution also includes other transfers of ownership such as gifts or barter.
Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 299 (3d Cir. 1991)
(citing H.R. Rep. No. 94-1476, at 62, reprinted in 1976 U.S.C.C.A.N. 5659,
5675-76 and 17 U.S.C.A. § 106 (West 1997) (historical note)).
Although it is occasionally argued that “distribution” requires the transfer
of a physical, tangible copy and therefore that transmission of electronic files
online cannot infringe the distribution right, it is clear that the right to
“distribute” copies of works includes the right to distribute them in electronic
form, and can be infringed by electronic transfers of copies. See, e.g., 17 U.S.C.
§ 506(a)(1)(C) (defining offense for “distribution” of pre-release works on a
public computer network); N.Y. Times Co. v. Tasini, 533 U.S. 483, 498 (2001)
(discussing distribution of articles through online databases).
•

“To the Public”

Although often referred to merely as “distribution,” the right protected by
§ 106 is, more specifically, the right to distribute copies or phonorecords of the
work “to the public.” 17 U.S.C. § 106(3) (emphasis added). Giving a single copy
of a work to a family member or close friend may not qualify as a “distribution”
for copyright purposes, although courts have found under some circumstances
that even the giving of a single copy to one person may constitute “distribution
II. Criminal Copyright Infringement

39

to the public.” Ford Motor Co., 930 F.2d at 299-300. But see Cartoon Network
LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (concluding that
cable television service’s “remote DVR” system, wherein a copy of a program
was transmitted to an individual customer after being recorded at customer’s
request, did not constitute distribution “to the public” for purposes of § 106).
The Copyright Act does not expressly define “distribution” or “public,”
except through definitions of other closely-related terms. The term “publication”
is defined in § 101, and is often used interchangeably with distribution, and
several courts have noted that the two terms are “for all practical purposes
synonymous” in the context of a first publication. Ford Motor Co., 930 F.2d
at 299; see also Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539,
552 (1985); Agee v. Paramount Comm’ns, Inc., 59 F.3d 317, 325 (2d Cir. 1995);
Elektra Entm’t Group, Inc. v. Barker, 551 F. Supp. 2d 234, 240-43 (S.D.N.Y.
2008); 2 Nimmer on Copyright § 8.11[A], at 8-148 to 8-149. Some courts have
held, however, that “[i]t is not clear that the terms ‘publication’ and ‘distribution’
are synonymous outside the context of first publication.” Atlantic Recording
Corp. v. Howell, 554 F. Supp. 2d 976, 984 (D. Ariz. 2008) (“the definition of
publication in § 101 of the statute makes clear that all distributions to the public
are publications, but it does not state that all publications are distributions”);
London-Sire Records, Inc. v. Doe 1, 542 F. Supp. 2d 153, 168-69 (D. Mass.
2008) (“even a cursory examination of the statute suggests that the terms are
not synonymous.... By the plain meaning of the statute, all ‘distributions ... to
the public’ are publications. But not all publications are distributions to the
public”).
Section 101 also defines the term “publicly,” with respect to performances
and display of works, as referring to “place[s] open to the public or any place
where a substantial number of persons outside of a normal circle of a family
and its social acquaintances is gathered.”
For cases discussing distribution “to the public” in several contexts, such
as computer networks and subscription based services, see Section B.3.c.ii. of
this Chapter.
•

Importation

Infringing articles are often manufactured overseas and then shipped into
the United States for distribution. Under 17 U.S.C. § 602, importation of
infringing copies into the United States without permission of the copyright
owner generally constitutes “an infringement of the exclusive right to distribute
40

Prosecuting Intellectual Property Crimes

copies or phonorecords under section 106.” Although § 602 specifies
that unauthorized importation is a violation of the distribution right (thus
providing a basis for criminal prosecution under § 506), and states further than
unauthorized importation is “actionable under section 501,” § 602 does not
expressly mention criminal actions under § 506. To date, no reported case has
prohibited prosecutors from bringing an action pursuant to § 506 as a result
of a violation of 17 U.S.C. § 602. However, in cases involving importation,
prosecutors alternatively should consider charging the defendant with bringing
goods into the United States by false statements, 18 U.S.C. § 542, or with
smuggling goods, 18 U.S.C. § 545.
•

Making Works Available on the Internet Without Transferring
Them

In the context of peer-to-peer (“P2P”) file-sharing networks, placing
materials on a website, or other similar methods by which copyrighted
materials might be downloaded online, a question may arise as to whether
a defendant who merely makes copyrighted material available to others to
download copies has infringed the distribution right, in the absence of any
evidence of an actual transfer of infringing works. If a P2P user has made
movies, music, or software available to the public by placing them in a shared
area of his networked desktop computer, but his computer contained no
records of whether or how many times these files were downloaded by others,
and there is no other evidence that the copyrighted works the defendant “made
available” were actually transferred to another computer (or indeed, if there
is evidence that no such transfers actually occurred, despite the defendant’s
having made the files available), has the defendant nevertheless infringed the
distribution right in the works (setting aside for the moment the question of
whether the defendant may have infringed the reproduction right by copying
the files in the first place, or whether the defendant may be infringing the
public performance or display rights in the work)? There is no clear answer,
however, as described more below, courts will likely require proof of at least
some form of dissemination to have occurred in order to find a defendant
guilty of a criminal violation of the distribution right.
Several civil cases addressing online infringement suggest that the
distribution right is infringed at the point when the defendant makes a file
publicly available. See A&M Records v. Napster, Inc., 239 F.3d 1004, 1014 (9th
Cir. 2001) (noting that “Napster users who upload file names to the search
index for others to copy violate plaintiffs’ distribution rights. Napster users who
II. Criminal Copyright Infringement

41

download files containing copyrighted music violate plaintiffs’ reproduction
rights.”); Motown Record Co., LP v. DePietro, No. 04-CV-2246, 2007 WL
576284, at *3 n.38 (E.D. Pa. Feb. 16, 2007) (“While neither the United
States Supreme Court nor the Third Circuit Court of Appeals has confirmed
a copyright holder’s exclusive right to make the work available, the Court is
convinced that 17 U.S.C. § 106 encompasses such a right ....”); Elektra Entm’t
Group, Inc. v. Doe, No. 5:08-CV-115-FL, 2008 WL 5111885 (E.D.N.C., Sept.
26, 2008); Warner Bros. Records, Inc. v. Doe, No. 5:08-CV-116-FL, 2008 WL
5111884 (E.D.N.C., Sept. 26, 2008); see also Playboy Enters. v. Chuckleberry
Publ’g, Inc., 939 F. Supp. 1032, 1039 (S.D.N.Y. 1996) (uploading content on
Internet and inviting users to download it violates exclusive publication right);
Playboy Enters. v. Russ Hardenburgh, Inc., 982 F. Supp. 503, 513 (N.D. Ohio
1997) (“Defendants disseminated unlawful copies of PEI photographs to the
public by adopting a policy in which RNE employees moved those copies to
the generally available files instead of discarding them.”); Getaped.Com, Inc. v.
Cangemi, 188 F. Supp. 2d 398, 402 (S.D.N.Y. 2002) (holding that copyrighted
material was published when it was placed on website and available for viewing
or downloading).
A case frequently cited for the proposition that “making available” violates
the distribution right is Hotaling v. Church of Jesus Christ of Latter-Day Saints,
118 F.3d 199 (4th Cir. 1997). At issue in Hotaling was whether a church
library open to the public had distributed the plaintiff’s work by having it in its
collection and listing it in its card catalog, even though no evidence indicated
that the work had actually been borrowed or viewed by library patrons. The
defendant argued that holding the work in its collection constituted a mere
offer to distribute, at most, not an actual distribution. The court sided with
the plaintiffs:
When a public library adds a work to its collection, lists the
work in its index or catalog system, and makes the work
available to the borrowing or browsing public, it has completed
all the steps necessary for distribution to the public. At that
point, members of the public can visit the library and use the
work. Were this not to be considered distribution within the
meaning of § 106(3), a copyright holder would be prejudiced
by a library that does not keep records of public use, and the
library would unjustly profit by its own omission.

42

Prosecuting Intellectual Property Crimes

Id. at 203. At least one court considering Hotaling focused on the opinion’s
concern with potential prejudice from a library that kept no records, and
suggested that the same logic might apply in online cases where no records are
kept. In Arista Records, Inc. v. MP3Board, Inc., No. 00CIV.4660(SHS), 2002
WL 1997918, at *4 (S.D.N.Y. Aug. 29, 2002) (citing Hotaling, 118 F.3d at
204), the court considered that “a copyright holder may not be required to
prove particular instances of use by the public when the proof is impossible to
produce because the infringer has not kept records of public use,” but declined
to find that an actual distribution had occurred based on the facts before it (in
which investigators for the record industry had determined only that hyperlinks
on the defendant’s website pointed to infringing audio files). Id.
Many other courts have sought to resolve peer-to-peer lawsuits while
avoiding resolution of “making available” arguments. See, e.g., Arista Records LLC
v. Gruebel, 453 F. Supp. 2d 961, 969 (N.D. Tex. 2006) (“[M]aking copyrighted
works available to others may constitute infringement by distribution in certain
circumstances.”); Maverick Recording Co. v. Goldshteyn, No. 05-CV-4523, 2006
WL 2166870, at *3 (E.D.N.Y. July 31, 2006) (Plaintiff’s “‘making available’
argument need not be decided here.”); Fonovisa, Inc. v. Alvarez, No. 1:06-CV011, 2006 WL 5865272, at *2 (N.D. Tex. July 24, 2006) (“This Court is not
making a determination as to whether ‘making works available’ violates the
right of distribution.”).
The Copyright Office states that U.S. copyright law includes a “making
available” right that covers making files available on the Internet. See U.S.
Copyright Office, DMCA Section 104 Report, Vol. 1, at 93-95 (August 2001)
available at http://www.copyright.gov/reports/studies/dmca/sec-104-reportvol-1.pdf. This, however, does not necessarily resolve the issue for criminal
cases because the Copyright Office characterizes this “making available right”
as resulting from a combination of the distribution, reproduction, public
display, and public performance rights. Id. at 94. Because the felony copyright
provisions apply only to infringement of the distribution and reproduction
rights, it is unclear whether “making available” (as the Copyright Office
interprets it) can support a felony charge.
More recently, however, most courts confronting the “making available”
issue in civil cases involving either peer-to-peer filesharing or other online
contexts have determined that infringing “distribution” requires the
dissemination of an actual copy, or have at least expressed some skepticism that
mere “making available” is sufficient to constitute infringement. See Perfect 10,
II. Criminal Copyright Infringement

43

Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1162 (9th Cir. 2007) (distribution
requires actual dissemination of a copy); Capitol Records, Inc. v. Thomas, 579
F. Supp. 2d 1210, 1218-19 (D. Minn. 2008) (plain meaning of “distribution”
requires actual dissemination and does not include merely making available);
Elektra v. Barker, supra, 551 F. Supp. 2d 234 (S.D.N.Y. 2008) (mere allegation
of “making available” not sufficient to plead infringement, although noting
that an offer to distribute copies for further distribution to others would be
sufficient); London-Sire Records, Inc. v. Doe 1, 542 F. Supp. 2d 153, 168-69
(D. Mass. 2008) (“Merely because the defendant has ‘completed all the steps
necessary for distribution’ does not necessarily mean that a distribution has
actually occurred.”); see also Atlantic Recording Corp. v. Brennan, 534 F. Supp.
2d 278, 282 (D. Conn. Feb 13, 2008) (denying plaintiffs’ entry of default
against defendant, in part, by finding that defendant may have a meritorious
defense against plaintiffs’ “problematic” make available argument); Atlantic
Recording Corp. v. Howell, 554 F. Supp. 2d 976, 981 (D. Ariz. 2008).
A number of other federal courts have held that distribution requires that
an infringing copy actually be disseminated. See Obolensky v. G.P. Putnam’s Sons,
628 F. Supp. 1552, 1555 (S.D.N.Y. 1986) (directing verdict for defendants after
jury trial because the right to distribute is not violated “where the defendant
offers to sell copyrighted materials but does not consummate a sale” or “where
there is copying, but no sale of the material copied”), aff’d, 795 F.2d 1005 (2d
Cir. 1986); accord Paramount Pictures Corp. v. Labus, No. 89-C-797-C, 1990
WL 120642, at *4 (W.D. Wis. Mar. 23, 1990); National Car Rental Sys., Inc.
v. Computer Assocs. Int’l, Inc., 991 F.2d 426, 430 (8th Cir. 1993) (holding
that distribution requires the transfer of an actual copy, as § 106(3) grants
the copyright owner the “exclusive right publicly to sell, give away, rent or
lend any material embodiment of his work”) (quoting 2 Nimmer on Copyright
§ 8.11[A], at 8-123 (emphasis added by National Car Rental)); cf. In re: Aimster
Copyright Litig., 252 F. Supp. 2d 634, 643 (N.D. Ill. 2002) (noting, without
analysis, that a peer-to-peer user “with copyrighted music files on his hard
drive available for download can [once another user searches for and locates a
file on the first user’s computer] thereafter become an unauthorized distributor
of that copyrighted music as soon as another Aimster user initiates a transfer of
that file.”), aff’d, 334 F.3d 693 (7th Cir. 2003). The leading copyright treatise
also supports this view. See 2 Nimmer on Copyright § 8.11[A], at 8-124.1
(“Infringement of [the right to distribute] requires an actual dissemination of
either copies or phonorecords.”).
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Only one criminal decision has addressed this question, albeit in the
context of deciding whether state court charges were preempted by federal
copyright law: “Posting software on a bulletin board where others can access
and download it is distribution ... which is governed by the [federal] copyright
laws.” State v. Perry, 697 N.E.2d 624, 628 (Ohio 1998).
In 2005, Congress created a new offense for infringement of “pre-release”
content (see infra, Sec. B.3.c.) that unfortunately does not appear to have
resolved the “making available” issue. Section 506(a)(1)(C) makes it a felony
to willfully infringe “by the distribution of [a pre-release work] by making it
available on a computer network accessible to members of the public ....” To
date, few courts have had the opportunity to address what “making available”
means in the context of § 506(a)(1)(C). Thus far, the only published opinion
to discuss the issue is In re Napster, Inc. Copyright Litig., 377 F. Supp. 2d 796
(N.D. Cal. 2005). In that opinion, the court considered the plaintiffs’ motion
for summary judgment on their claims that Napster had directly infringed
the plaintiffs’ copyrights by creating and maintaining an indexing system that
allowed users to upload and download infringing music files. Id. at 802. The
key question was “whether the Copyright Act requires proof of the actual
dissemination of a copy or phonorecord in order to establish the unlawful
distribution of a copyrighted work in violation of 17 U.S.C. § 106(3).” Id. The
court concluded that distribution did not include the mere offer to distribute
a copyrighted work, given the plain meaning and legislative history of the
terms “distribution” and “publication.” See id. at 803-04. The court concluded
that “to the extent that Hotaling suggests that a mere offer to distribute
a copyrighted work gives rise to liability under section 106(3), that view is
contrary to the weight of [the] above-cited authorities.” Id. at 803 (citations
omitted). Finally, the court rejected the argument that the “making available”
language in the new offense at 17 U.S.C. § 506(a)(1)(C), discussed in Section
B.3.c.ii. of this Chapter, evinced Congress’s intent that “making available” was
a type of distribution, concluding that § 506(a)(1)(C) made willful copyright
infringement and “making available” two separate elements. Napster, 377 F.
Supp. 2d at 805.
Given this backdrop, courts deciding criminal cases are likely to require
proof of actual dissemination of copies, as opposed to evidence that the
defendant merely “made [infringing works] available,” if only to satisfy the
rule of lenity. See United States v. Wiltberger, 18 U.S. 76, 95 (1820); Dowling
v. United States, 473 U.S. 207, 213, 228-29 (1985) (applying rule of lenity to
II. Criminal Copyright Infringement

45

construe stolen property laws narrowly in light of copyright law). Moreover,
courts might consider Congress’s choice not to punish attempts in § 506 as
further evidence that distribution, in criminal cases, requires an actual transfer
of an infringing copy to the public.
Some of the civil cases in which proof of actual dissemination has not been
required suggest an alternative rule—that where, due to the defendant’s actions,
no records exist of actual transfers, the court may infer or presume that actual
dissemination took place. See Hotaling, 118 F.3d 199; Arista Records, 2002 WL
1997918. That rule, however, might not be adopted in criminal cases, in which
infringing distribution must be proven beyond a reasonable doubt.
As a practical matter, evidence of actual infringing transfers strengthens
other aspects of the case. Even if a theory of distribution without dissemination
were accepted by the court, a jury might nevertheless reject it—either in
sympathy toward a defendant who ostensibly copied nothing, or by concluding
that the defendant could not have understood that his conduct constituted
infringement sufficiently to establish willful behavior. See the discussion of
willfulness in Section B.2. of this Chapter.
When proving that the defendant actually distributed infringing copies,
distributions to law enforcement officers or to agents working for the victim
should suffice, as a matter of law. See Capitol Records Capitol Records, Inc. v.
Thomas, 579 F. Supp. 2d 1210, 1216 (D. Minn. 2008) (distribution of copies
to investigator can form the basis for civil claim of infringing distribution
right); Atlantic Recording Corp. v. Howell, 554 F. Supp. 2d 976, 985 (D. Ariz.
2008) (holding that 12 infringing copies downloaded by copyright owner’s
investigators constituted unauthorized distributions); Gamma Audio & Video,
Inc. v. Ean-Chea, No. 91-11615-Z, 1992 WL 168186 at *3 n.5 (D. Mass.
July 3, 1992), rev’d in part on other grounds, 11 F.3d 1106 (1st Cir. 1993);
Paramount Pictures, 1990 WL 120642 at *5. But see London-Sire Records, Inc.,
542 F. Supp. 2d at 166 (stating in dicta that copyright holder’s investigator’s
“own downloads are not themselves copyright infringements because it is acting
as an agent of the copyright holder, and copyright holders cannot infringe their
own rights”). In some cases, a defendant may have evinced a clear intent to share
copyrighted content online in an infringing manner, but sufficient evidence of
specific instances of dissemination may be difficult or impossible to obtain.
Prosecutors should consider whether the conduct at issue may be appropriately
characterized as an infringement of the reproduction right. Further, although
attempts to violate § 506 are not criminalized, in appropriate cases a charge
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of conspiracy to violate § 506 may be an alternative option. The government
need not prove an actual dissemination if the charge is conspiracy to violate the
criminal copyright laws by means of distribution. That is, because conspiracy
is an inchoate crime, the government need not prove that the underlying crime
of distribution was completed.
•

First Sale

Under 17 U.S.C. § 109, it is not an infringement for the owner of a
lawfully-acquired copy or phonorecord of a work to sell or otherwise dispose
of that particular copy. This exception is often referred to as the “first-sale”
doctrine. For example, a person who purchases a book at a bookstore may later
resell the book at a yard sale or donate it to a library, without the copyrightholder’s permission. Although first sale is treated as a defense in civil cases,
some criminal copyright cases have held that the government must plead and
prove the absence of a first sale as an element of the offense. See Section C.4.c.
of this Chapter.
b. Infringement of at Least 10 Copies of 1 or More Copyrighted Works
With a Total Retail Value Exceeding $2,500 Within a 180-Day
Period
i. Generally
The final element for felony offenses under 17 U.S.C. § 506(a)(1)(A) and
(B) is that the infringement consisted of the “reproduction or distribution,
including by electronic means, during any 180-day period, of at least 10 copies
or phonorecords, of 1 or more copyrighted works, which have a total retail value
of more than $2,500.” 18 U.S.C. § 2319(b)(1); see also 18 U.S.C. § 2319(c)(1)
(alternative felony provision, applying when value is “$2,500 or more”). For
definition of “copies” and “phonorecords,” see Section B.3.a. of this Chapter
(discussing 17 U.S.C. § 101).
Congress reserved felony penalties for those who copy or distribute
a minimum of 10 copies to exclude from felony prosecution low-level
infringement such as “children making copies for friends as well as other
incidental copying of copyrighted works having a relatively low retail value,”
and also to avoid having the criminal provisions used as a “tool of harassment”
in business disputes involving issues such as reverse engineering or the scope of
licenses. H.R. Rep. No. 102-997, at 6 (1992), reprinted in 1992 U.S.C.C.A.N.
3569, 3574.
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47

Congress used the phrase “of one or more copyrighted works” as a way
“to permit aggregation of different works of authorship to meet the required
number of copies and retail value.” Id. Congress gave as an example a defendant
who reproduces 5 copies of a copyrighted word-processing computer program
with a retail value of $1,300 and 5 copies of a copyrighted spreadsheet computer
program also with a retail value of $1,300. Aggregating these reproductions
“would satisfy the requirement of reproducing 10 copies having a retail value
of at least $2,500, if done within a 180-day period.” Id.
ii. Definition of “Retail Value” as an Element of the Offense
Congress left the term “retail value” “deliberately undefined since in most
cases it will represent the price at which the work is sold through normal retail
channels.” Id.
Based on both the plain meaning of the statutory text and the legislative
history of the 1992 Copyright Felony Act, the term “retail value” as used
in 17 U.S.C. § 506 and 18 U.S.C. § 2319 refers to the retail value of the
infringed item, i.e., the original or genuine item that was infringed, in the
market in which it is sold. By contrast, for sentencing purposes, the Sentencing
Guidelines defines “retail value” to include either the value of the “infringed
item” (the authentic item) or the “infringing item”(the “street” price of a pirated
or counterfeit copy) to compute the sentencing offense level, depending on
the circumstances of the crime. See the discussion of U.S.S.G. § 2B5.3 cmt.
n.2(C) in Section C.1.c.iii. of Chapter VIII of this Manual.
For purposes of proving the dollar value element of criminal infringement
under 17 U.S.C. § 506(a)(1) and 18 U.S.C. § 2319(b) or (c), “retail value”
means the retail price of a legitimate or genuine copy of the item infringed at
the time of the defendant’s infringement. See United States v. Armstead, 524
F.3d 442, 443 (4th Cir. 2008) (holding that retail value can be “determined
by taking the highest of the ‘face value,’ ‘par value,’ or ‘market value’ of copies
of the copyrighted material in a retail context”). Calculating a work’s retail
value can be more complicated when the work has been published in multiple
versions—which often occurs with computer software. In civil cases involving
infringement of a new version of a software program that had not yet been
registered with the Copyright Office, where earlier versions had been registered,
some courts have allowed damages only to the extent that the infringed material
consists of material from the earlier, registered versions. See, e.g., Montgomery
v. Noga, 168 F.3d 1282, 1292 (11th Cir. 1999); Well-Made Toy Mfg. Corp. v.
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Goffa Int’l Corp., 210 F. Supp. 2d 147, 158 (E.D.N.Y. 2002); 2 Nimmer on
Copyright § 7.16[B][2]. But see Montgomery, 168 F.3d at 1294-95 (upholding
jury instruction that permitted the jury to calculate the plaintiff’s actual
damages by considering the market value of newer, unregistered version).
Although the issue of multiple versions presents more significant challenges
in the civil context, where registration of the copyright in a particular work is
a prerequisite to filing a lawsuit for infringement of that work, the existence
of multiple versions can substantially affect the “retail value” of a work for
purposes of criminal prosecution as well. For example, where the most recent
version of a business software program (“Program 2.0”) is being sold through
legitimate retail outlets for $200, while legitimate copies of an older version
(“Program 1.0”) are still being sold, albeit for the lower retail price of $100,
a defendant who pirated 20 copies of the new version would be subject to
felony penalties (20 copies at $200 each, totaling $4,000), while a defendant
who reproduced 20 pirated copies of the older version would only meet the
threshold for a misdemeanor (20 X $100= $2,000). In considering whether
and how to charge criminal copyright infringement, prosecutors will want to
make sure to assess charges based on the specific version of a copyrighted work
that was infringed, and if possible, to obtain retail pricing information on the
specific version infringed during the relevant period of the defendant’s conduct.
iii. Retail Value for Pre-release Works
Prosecutors may choose to include pre-release works in charges brought
under 17 U.S.C. § 506(a)(1)(A), (B) and 18 U.S.C. § 2319(b), (c), where, for
example, the defendant engaged in criminal infringement of both pre-release
and non-pre-release works, or where other elements of the “pre-release” offense
may be difficult to prove. Determining the “retail value” of a pre-release work
can be challenging because such works, by definition, are not yet sold on the
legitimate market, and thus their legitimate retail value may not yet be set.
Congress acknowledged the problem and offered several solutions:
At the same time, the Committee recognizes that copyrighted
works are frequently infringed before a retail value has been
established, and that in some cases, copyrighted works are not
marketed through normal retail channels. Examples include
motion pictures [sic] prints distributed only for theatrical
release, and beta-test versions of computer programs. In such
cases, the courts may look to the suggested retail price, the wholesale
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49

price, the replacement cost of the item, or financial injury caused
to the copyright owner.
H.R. Rep. No. 102-997, at 6-7 (1992) (emphasis added), reprinted in 1992
U.S.C.C.A.N. 3569, 3574-75. If the infringed item has no retail value, the
important consideration is the harm to the copyright owner, rather than the
(presumably smaller value of ) profits to the infringer. See id. at 6; 138 Cong.
Rec. 34,371 (1992) (statement of Sen. Hatch).
Although the Family Entertainment and Copyright Act (“FECA”) created
a new felony offense to address Internet piracy of “work[s] being prepared for
commercial distribution,” the Act does not specify a particular method for
determining the “retail value” of such works. See Pub. L. No. 109-9 § 103,
119 Stat 218, 220-21 (2005) (codified at 17 U.S.C. § 506(a)(1)(C)). (One
possible reason: the “pre-release” offense created by the FECA requires no
minimum number or value of infringing copies, in contrast to the 10-copy,
$2500 thresholds in previously-existing copyright felonies. Compare 17 U.S.C.
§ 506(a)(1)(C) with 17 U.S.C. § 506(a)(1)(A), (B) and 18 U.S.C. § 2319. The
FECA “pre-release” offense is discussed in more detail in Section B.3.c., below.)
In cases where infringement of pre-release works form the basis of a
§ 506(a)(1)(A) or (B) charge, requiring proof of a minimum “total retail value,”
prosecutors should consider the alternative methods for valuation discussed in
the legislative history above. Also instructive is the approach taken by the U.S.
Sentencing Commission in formulating Sentencing Guidelines amendments
to address the FECA “pre-release” offense. Those guidelines specify that prerelease works should be valued, for sentencing purposes, at the anticipated
retail value of legitimate works upon their legitimate commercial release. See
U.S.S.G. § 2B5.3 cmt. n.2(A)(vi) (amended Oct. 24, 2005). (The Guidelines
also include a 2-level enhancement for offenses involving pre-release works.
See id. § 2B5.3(b)(2); and Section C.1.c.iii. of Chapter VIII of this Manual.)
Where the basis for a § 506(a)(1)(A) or (B) charge consists of a mixture of
pre-release and non-pre-release works, the safest course for prosecutors may be
to ensure that the $2500 threshold can be demonstrated based on the value of
non-pre-release works alone.
iv. $2,500 Threshold
To charge a criminal copyright violation as a felony in cases not involving
a “pre-release” offense, the government must prove that the total retail value
of the infringing copies exceeded $2,500. This threshold has one minor
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Prosecuting Intellectual Property Crimes

complication: the felony threshold is “more than $2,500” when the defendant
acted with a profit motive, 18 U.S.C. § 2319(b)(1), but only “$2,500 or more”
when the defendant acted without a profit motive, 18 U.S.C. § 2319(c)(1).
To be safe, each felony indictment should charge a value greater than $2,500.
v. Within 180 Days
These technical requirements are sometimes difficult to prove. For example,
if a defendant operated a video store that rented only pirated videos, but kept no
records that describe who did what and at what time, it might be difficult to prove
that the defendant himself reproduced or distributed the videos, or that he did
so within a particular 180-day period. If faced with such a case, the government
may wish to consider alternative charges—such as conspiracy to commit felony
criminal copyright infringement; misdemeanor copyright infringement (which
reduces the number of copies to 1 and the retail value threshold to $1,000; see
Section B.5. of this Chapter); 18 U.S.C. § 2318 (counterfeit or illicit labels,
documentation, or packaging for copyrighted works); or 18 U.S.C. § 2320
(trafficking in goods, services, labels, documentation, or packaging with
counterfeit marks)—that have no numerical or monetary thresholds. Section
2320 also has the advantage of punishing attempts, which can be proved when
the government lacks records of the completed crime
c. Distribution of a Work Being Prepared for Commercial Distribution,
by Making it Available on a Publicly-Accessible Computer Network,
if the Defendant Knew or Should Have Known the Work Was
Intended for Commercial Distribution
In 2005, Congress added an additional felony offense to address the online
infringement of pre-release works. See Family Entertainment and Copyright
Act of 2005 (FECA), Pub. L. No. 109-9 § 103 (codified at 17 U.S.C. § 506(a)
(1)(C)). (This provision is part of Title I of FECA, also known as the “Artists
Rights and Theft Prevention Act of 2005” or the “ART Act.”) Congress enacted
this provision to target two phenomena that it deemed particularly harmful to
copyright-holders, especially in combination—“pre-release” piracy and Internet
piracy (especially peer-to-peer file-sharing). See, e.g., Remarks on Introduction
of Bill in Senate, 151 Cong. Rec. S494 (daily ed. Jan. 25, 2005); Judiciary
Committee Report, H.R. Rep. No. 109-33(I), at 4 (2005), reprinted in 2005
U.S.C.C.A.N. 220, 223. Section 506(a)(1)(C) makes it a felony to willfully
infringe “[i] by the distribution of [ii] a work being prepared for commercial
distribution, [iii] by making it available on a computer network accessible to
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51

members of the public, [iv] if such person knew or should have known that
the work was intended for commercial distribution.” 17 U.S.C. § 506(a)(1)(C)
(small Roman numerals added for purposes of illustration).
The new offense eliminates the monetary and numeric thresholds for
felony copyright infringement if the defendant distributed pre-release works
on a computer network.
i. Distribution
The offense defined under 17 U.S.C. § 506(a)(1)(C) applies only to
infringement by distribution (as opposed to the copyright felonies in 17 U.S.C.
§ 506(a)(1)(A),(B) that apply to infringement by distribution or reproduction).
For discussion of proving distribution, see Section B.3.a.ii. of this Chapter.
Section 506(a)(1)(C)’s use of the term “making available” does not
resolve the issue of whether “distribution” requires an actual dissemination of
infringing copies. As of this writing, the only reported case that has discussed
this issue specifically in the context of § 506(a)(1)(C), a civil copyright case,
stated that “distribution” and “making available on a computer network” are
two separate elements of the § 506(a)(1)(C) offense. See In re Napster, Inc.
Copyright Litig., 377 F. Supp. 2d 796, 805 (N.D. Cal. 2005). The inclusion
of “making available” did not, according to this court, redefine distribution to
include making available. See Section B.3.a.ii and the following Section of this
Chapter.
Regardless of whether “distribution” legally requires actual dissemination
of copies, or is interpreted to include merely offers to provide copies, as a
practical matter, evidence of actual dissemination of pre-release copies will
generally strengthen the government’s case, and should be presented if possible.
ii. Making the Work Available on a Computer Network Accessible
to Members of the Public
The next element is “making [the work] available on a computer network
accessible to members of the public.” See 17 U.S.C. § 506(a)(1)(C).
Although the statute does not define “computer network” or “accessible
to members of the public,” the bill was clearly intended to address piracy over
the Internet. See H.R. Rep. No. 109-33(I), reprinted in 2005 U.S.C.C.A.N.
220; 151 Cong. Rec. S499-500 (daily ed. Jan. 25, 2005) (statement of Sen.
Cornyn). Clear examples of “making the work available on a computer network
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accessible to members of the public” would include posting the work on a
website or placing it in a desktop computer’s shared file directory so that peerto-peer users around the world could access and download it.
“[A] computer network accessible to the public” should be read to include
large networks available to substantial numbers of people, even if the network
is not immediately accessible to all members of the public, such as a university’s
campus-wide network, a large but proprietary service like AOL, or a passwordprotected site on the Internet. This would be consistent with the right at issue
(“distribution to the public”), and the statutory definition of “publicly” in
the context of displays and performances, which refers to “any place where
a substantial number of persons outside of a normal circle of a family and its
social acquaintances is gathered.” See 17 U.S.C. § 101; Playboy Enters., Inc. v.
Frena, 839 F. Supp. 1552, 1557 (M.D. Fla. 1993) (holding that displaying
infringing photographs over a computer bulletin board to audience limited to
paying subscribers constituted display “to the public”); accord Video Pipeline,
Inc. v. Buena Vista Home Entm’t, Inc., 192 F. Supp. 2d 321, 332 (D.N.J. 2002),
aff’d on other grounds, 342 F.3d 191 (3d Cir. 2003); Video Pipeline, Inc. v.
Buena Vista Home Entm’t, Inc., 275 F. Supp. 2d 543, 554 (D.N.J. 2003).
See also Section B.3.a.ii. of this Chapter (discussing “to the public”). But cf.
Andersen Consulting LLP v. UOP, 991 F. Supp. 1041, 1042-43 (N.D. Ill. 1998)
(discussing meaning of electronic communications service “to the public” under
the Electronic Communications Privacy Act); Konop v. Hawaiian Airlines, Inc.,
302 F.3d 868, 875 (9th Cir. 2002) (same).
iii. Work Being Prepared for Commercial Distribution
The next element of an offense under § 506(a)(1)(C) is that the infringed
work must be a “work being prepared for commercial distribution,” which is
defined as:
(A) a computer program, a musical work, a motion picture or
other audiovisual work, or a sound recording, if, at the time of
unauthorized distribution-(i) the copyright owner has a reasonable expectation of
commercial distribution; and
(ii) the copies or phonorecords of the work have not been
commercially distributed; or

II. Criminal Copyright Infringement

53

(B) a motion picture, if, at the time of unauthorized distribution,
the motion picture-(i) has been made available for viewing in a motion picture
exhibition facility; and
(ii) has not been made available in copies for sale to the
general public in the United States in a format intended to
permit viewing outside a motion picture exhibition facility.
17 U.S.C. § 506(a)(3). Thus, the definition includes only four types of
works: software, musical works, audiovisual works such as movies, and sound
recordings. Although these categories make up most of the works pirated online,
other types that could also be infringed online—such as books, photographs
and other works of visual art—are not included.
When Congress created these provisions, it also created a “preregistration”
process allowing owners to “preregister” their “works being prepared for
commercial distribution” with the Copyright Office. See 17 U.S.C. § 408(f );
37 C.F.R. § 202.16 (effective July 2, 2008); Section B.1.c. of this Chapter
(discussing preregistration). However, prosecutors should be aware that the
scope of the term “works being prepared for commercial distribution” is
narrower for purposes of the criminal offense under § 506(a)(1)(C) than
the scope that term was given by the Copyright Office in its preregistration
regulations. First, the Copyright Office’s regulations cover not only movies,
music, and software, but also literary works and advertising or marketing
photographs. See 37 C.F.R. § 202.16. This is broader than the four classes
specified by 17 U.S.C. § 506(a)(3), and therefore some works the Copyright
Office considers “works being prepared for commercial distribution” may not
qualify as “works being prepared for commercial distribution” for purposes of
the criminal “pre-release” offense.
Second, the Copyright Office allows for the preregistration of a work
that is in the early stages of development: for example, for motion pictures,
filming must have commenced, and for a computer program, at least some
of the computer code must have been fixed. See 37 C.F.R. § 202.16(b)(2).
Although these standards may suffice for preregistration with the Copyright
Office, prosecutors should exercise caution in evaluating whether to pursue
charges based on works that are substantially incomplete. Cases involving a
mere fragment of a work or a substantially incomplete work are more likely to
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face difficulties in proving copyrightability and infringement, as well as proving
“retail value” and perhaps willfulness as well.
Although the pre-release offense and the preregistration process were
enacted at the same time, the plain language of 17 U.S.C. § 506(a)(1)(C)
does not require that the “work being prepared for commercial distribution”
be preregistered before an infringer can be prosecuted. Nor does the legislative
history indicate that Congress intended § 506(a)(1)(C) to apply only to
“preregistered” works. Therefore, the FECA amendments did not alter the
government’s power to prosecute infringement that occurs before preregistration
or registration of a work. See also 17 U.S.C. § 411 (registration only required
to commence civil action).
iv. The Defendant Knew or Should Have Known that the Work Was
Intended for Commercial Distribution
The next element in § 506(a)(1)(C) concerning the defendant’s awareness
that the work was “being prepared for commercial distribution,” has a lower
mens rea than the other elements of the offense, which require proof of
“willfulness.” For this element, the government does not have to prove that
a defendant had actual knowledge that the infringed work was a pre-release
work, but rather, the government need only show that the defendant “knew or
should have known” that the work was “intended for commercial distribution,”
which is essentially a negligence standard.
4. Additional Element for Enhanced Sentence: Purpose of Commercial
Advantage or Private Financial Gain
Proving that the defendant acted “for purposes of commercial advantage
or private financial gain” is often either a primary element of an IP crime or a
secondary element that can enhance the defendant’s maximum sentence. These
issues are covered in Sections B. of this Chapter (setting out elements) and
C.1.f. (sentencing factors) of Chapter VIII this Manual.
a. History
Before 1997, U.S. law required the government to prove the defendant’s
intent to seek commercial advantage or private financial gain in every criminal
copyright prosecution. In United States v. LaMacchia, 871 F. Supp. 535, 53940 (D. Mass. 1994), the defendant had operated an internet site that invited
users to upload and download pirated software. Presumably recognizing, as the
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55

district court later noted, that the defendant could not have been charged with
criminal copyright infringement because he had operated his Internet site for
trading pirated works without a profit motive, the government instead charged
LaMacchia with wire fraud. The court dismissed that charge, suggesting that
applying the broad wire fraud statute to copyright infringement could “subvert
the carefully calculated penalties” and the “carefully considered approach”
Congress had taken in the area of copyright. Id. at 539-40 (quoting Dowling v.
United States, 473 U.S. 207, 225 (1985)).
In direct response to LaMacchia, Congress passed the No Electronic Theft
(“NET”) Act, Pub. L. No. 105-147, 111 Stat. 2678 (1997), which, among
other things, closed the “LaMacchia loophole” by eliminating “commercial
advantage or private financial gain” as an element of felony copyright
infringement. statute. See 143 Cong. Rec. 24,324 (1997) (remarks of Rep.
Coble); H.R. Rep. No. 105-339, at 4-5 (1997). By enacting what was then
17 U.S.C. § 506(a)(2) (renumbered § 506(a)(1)(B) by the Apr. 27, 2005
amendments), Congress created a felony that only requires the government to
prove willful infringement above certain monetary and numerical thresholds.
Congress’s swift response to LaMacchia recognized how the Internet and
then new technology had already dramatically changed the way in which
copyright infringement was occurring and the resulting harm caused to
copyright owners. Now, as then, the Internet allows people to engage in largescale digital piracy with little expense, time, or complexity. The ease of Internet
piracy reduces (and perhaps eliminates) infringers’ need for a financial return
even as it significantly affects the market for legitimate goods. See Committee
Report on No Electronic Theft Act, H.R. Rep. No. 105-339, at 4-5 (1997).
Willful infringers can act out of a variety of motives unrelated to profit—
including a rejection of the copyright laws, anti-corporate sentiments, or
bragging rights in the piracy community—yet still cause substantial financial
harm. Id.
Even though a profit motive is not a necessary element of every copyright
offense, it should nonetheless be charged when possible because it increases the
defendant’s maximum statutory sentence, increases the guideline sentencing
range, increases jury appeal, and can help defeat baseless claims of fair use. See
Sections C.5. and E.1 of this Chapter, and Section C.1.f. of Chapter VIII of
this Manual.

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b. Legal Standard
Essentially, a defendant has acted for “commercial advantage or private
financial gain” if he sought a profit, financial or otherwise. Cf. 4 Nimmer on
Copyright § 15.01[A][2] (discussing legislative history to copyright statute).
“Financial gain” is broadly defined to include not only a monetary
transaction, but also the “receipt, or expectation of receipt, of anything of
value, including the receipt of other copyrighted works.” 17 U.S.C. § 101.
Bartering schemes are included, where people trade infringing copies of a work
for other items, including computer time or copies of other works. Congress
added this definition of financial gain in the NET Act specifically to address
bartering. See No Electronic Theft Act (NET) Act, Pub. L. No. 105-147,
111 Stat. 2678 (1997); 143 Cong. Rec. 24,421 (1997) (statement of Sen.
Hatch); 143 Cong. Rec. 24,326 (1997) (statement of Rep. Goodlatte). For
example, federal prosecutors have successfully charged “commercial advantage
or private financial gain” in cases where defendants ran a closed piracy network
that distributed pirated works in exchange for access to other pirated works.
See, e.g., Department of Justice Press Release, California Man Pleads Guilty
for Role in Distributing Pirated Music During Five-year Period (May 2, 2011),
available at http://www.justice.gov/criminal/cybercrime/press-releases/2011/
montejanoPlea.pdf.
Although courts have had few occasions to consider the scope of “commercial
advantage,” the plain meaning of the term and case-law in other areas suggest
that “commercial advantage” includes not only obtaining payment for infringing
products, but also using the infringing products to obtain an advantage over a
competitor. This is true even if the defendant charged nothing for the infringing
copies. See Herbert v. Shanley Co., 242 U.S. 591, 593-94 (1917) (Holmes, J.)
(holding that performing a copyrighted musical composition in a restaurant
or hotel, even without charging for admission, infringes the copyright owner’s
exclusive right to perform the work publicly for profit); A&M Records, Inc. v.
Napster, Inc., 239 F.3d 1004, 1023 (9th Cir. 2001) (holding that “[f ]inancial
benefit exists where the availability of infringing material acts as a draw for
customers,” even when the infringing material is offered for free) (internal
quotation marks and citation omitted), aff’g in pertinent part 114 F. Supp. 2d
896, 921 (N.D. Cal. 2000) (noting that Napster anticipated deriving revenues
from users by offering copyrighted music for free); Twentieth Century Music
Corp. v. Aiken, 356 F. Supp. 271, 275 (W.D. Pa. 1973) (holding that a business
that merely plays background music to relax its employees so that they will be
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efficient is infringing for profit), rev’d on other grounds, 500 F.2d 127 (3d Cir.
1974), aff’d 422 U.S. 151, 157 (1975) (assuming that restaurant owner acted
for profit); Associated Music Publishers v. Debs Mem’l Radio Fund, 141 F.2d 852
(2d Cir. 1944) (holding that a radio station that without permission broadcasts
a copyrighted work for free in order to get, maintain, and increase advertising
revenue has done so for profit).
Examples of infringement for commercial advantage include an engineering
firm’s use of pirated drafting software to keep overhead low, a website that offers
free pirated software to generate advertising revenue when downloaders visit
the site, and a business that gives away counterfeit goods to draw in customers
to whom it then sells legitimate services. In these cases, although the infringer
may not expect to receive money or other items of value in exchange for the
infringing copies, the infringement saves the business the money it would
have spent on authorized copies or licenses. The savings allow the infringer to
gain a commercial advantage over competitors who use only licensed copies of
copyrighted works.
Whether a defendant actually makes a profit is beside the point: what
matters is that he intended to profit. See 17 U.S.C. § 101 (defining “financial
gain” to include “expectation of receipt” of anything of value); id. § 506(a)(1)
(A) (“for purposes of commercial advantage or private financial gain”) (emphasis
added); 18 U.S.C. § 2319(d)(2) (same); United States v. Taxe, 380 F. Supp.
1010, 1018 (C.D. Cal. 1974) (“‘Profit’ includes the sale or exchange of the
infringing work for something of value in the hope of some pecuniary gain. It
is irrelevant whether the hope of gain was realized or not.”), aff’d in part and
vacated in part on other grounds, 540 F.2d 961 (9th Cir. 1976); United States
v. Shabazz, 724 F.2d 1536, 1540 (11th Cir. 1984) (same); United States v.
Moore, 604 F.2d 1228, 1235 (9th Cir. 1979) (holding that acting “for profit,”
as required by earlier version of Copyright Act, includes giving infringing work
to a prospective buyer to evaluate for free before purchasing); United States v.
Cross, 816 F.2d 297, 301 (7th Cir. 1987); Herbert, 242 U.S. at 595 (Holmes,
J.) (holding that under the copyright statute the performance of a copyrighted
work at a hotel or restaurant was for profit, even if customers did not pay
specifically for the performance, because “[w]hether it pays or not, the purpose
of employing it is profit and that is enough”).
Prosecutors should generally refrain from alleging that a defendant
obtained financial gain by getting free or discounted infringing works solely as
a result of copying or downloading works for himself. This benefit is common
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to all infringement, and to hold that mere infringement equals private financial
gain would convert every infringement case into one for private financial gain
and thus erase important distinctions in the civil and criminal copyright
statutes. Although there are apparently no reported opinions on this question
in criminal copyright cases, a number of courts have followed this reasoning
in interpreting a related statute with criminal and civil penalties for using and
trafficking in unauthorized satellite and cable television decoders “for purposes
of commercial advantage or private financial gain.” 47 U.S.C. § 553(b)(2).
These courts held that the mere purchase and use of such a device for the
defendant’s own benefit and that of his family and friends does not constitute
“gain” within the meaning of that statute. See, e.g., Comcast Cable Commc’ns
v. Adubato, 367 F. Supp. 2d 684, 693 (D.N.J. 2005) (holding that to qualify
as commercial advantage or private financial gain, the defendant must have
used the device “to further some commercial venture or profited in some way
from the device beyond simply sitting by himself or with his family and friends
around a television set using the illegal device to watch programs for which
payment should have been made”); American Cablevision of Queens v. McGinn,
817 F. Supp. 317, 320 (E.D.N.Y. 1993) (holding that “private financial gain”
should not be read to encompass defendant’s “gain” from receiving broadcasts
himself: such an interpretation would render “gain” enhancement superfluous
because all violations would result in gain). But see Charter Commc’ns Entm’t
I, LLC v. Burdulis, 367 F. Supp. 2d 16, 32 (D. Mass. 2005) (holding that
defendant who violated § 553 to receive unauthorized cable broadcasts did so
for purposes of “financial gain” within the statute); Cablevision Sys. New York
City Corp. v. Lokshin, 980 F. Supp. 107, 114 (E.D.N.Y. 1997) (same).
A profit motive can be proved by circumstantial evidence. See United States
v. Cross, 816 F.2d 297, 301 (7th Cir. 1987) (“[T]he presence of these seventeen
second-generation videocassettes on [the defendant’s] business premises may
rationally give rise to the inference that they were maintained for commercial
advantage or private financial gain.”).
5. Misdemeanor Copyright Infringement
To obtain a misdemeanor conviction under 17 U.S.C. § 506(a) and 18
U.S.C. § 2319, the government must demonstrate that:
1. A valid copyright exists;
2. The copyright was infringed by the defendant;
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3. The defendant acted willfully; and
4. The infringement was done EITHER
(a) for purposes of commercial advantage or private financial gain, 17
U.S.C. § 506(a)(1)(A); 18 U.S.C. § 2319(b)(3); OR
(b) by reproduction or distribution of one or more copyrighted works
with a total retail value of more than $1,000 within a 180-day
period, 17 U.S.C. § 506(a)(1)(B); 18 U.S.C. § 2319(c)(3).
Although the misdemeanor and felony crimes share some elements—
all require proving willful infringement—the need to prove scope or scale is
lessened for misdemeanors. In cases without commercial advantage or private
financial gain that involve the reproduction or distribution of infringing
copies, the threshold number of copies and monetary value for a misdemeanor
are lower than those required for a felony under 18 U.S.C. §§ 2319(b)(1) or
(c)(1): all that is required is one or more copies, with a total retail value of
$1,000 or more. And in cases of for-profit infringement, the misdemeanor has
no numerical or monetary prosecutorial thresholds. 18 U.S.C. § 2319(b)(3).
Thus, misdemeanor copyright infringement can be charged when a defendant
clearly profited or intended to profit, but where the government cannot prove
the exact volume or value of the infringement due to a lack of business records
or computer logs.
A misdemeanor charge can also apply to willful, for-profit infringement of
rights other than reproduction or distribution, such as the performance right
or digital audio transmissions. Although the felony penalties are reserved for
infringing reproduction and distribution, the misdemeanor provisions apply
“in any other case,” see 18 U.S.C. § 2319(b)(3), such as the infringement of
the other rights.

C.

Defenses
1. Statute of Limitations: 5 years

The criminal copyright statute has a five-year statute of limitations. 17
U.S.C. § 507(a). The five-year limitations period was first established by the
NET Act, Pub. L. No. 105-147 § 2(c), 111 Stat. 2678 (1997), before which
the limitations period had been three years (the same as for civil copyright
claims). See Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (1976).
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2. Jurisdiction
United States copyright law generally has no extraterritorial effect. Although
many foreign countries protect United States copyrights against infringement
in foreign lands, and domestic law similarly protects foreign copyrighted
works against infringement within the United States, 17 U.S.C. § 411(a),
U.S. law generally “cannot be invoked to secure relief for acts of [copyright]
infringement occurring outside the United States.” Palmer v. Braun, 376 F.3d
1254, 1258 (11th Cir. 2004); see also Subafilms, Ltd. v. MGM-Pathe Commc’ns,
24 F.3d 1088, 1091 (9th Cir. 1994) (en banc); Update Art, Inc. v. Modiin Pub’g,
Ltd., 843 F.2d 67, 73 (2d Cir. 1988) (“It is well established that copyright laws
generally do not have extraterritorial application.”).
This means that some copyright cases cannot be brought in the United
States, even when the victims are U.S. companies or nationals and the infringed
works are copyrighted in the United States. For example, U.S. law does not
grant federal courts jurisdiction over a manufacturing plant in southeast Asia
that produces pirated DVDs for sale in Europe, if the infringing conduct occurs
solely abroad. See Palmer, 376 F.3d at 1258.
In addition, in civil copyright cases, most courts hold that a defendant in
the United States who authorizes acts of infringing reproduction or distribution
that occur outside the country, standing alone, does not violate United States
copyright law sufficient to grant United States courts subject-matter jurisdiction.
See Subafilms, 24 F.3d at 1091; Armstrong v. Virgin Records, Ltd., 91 F. Supp. 2d
628, 634 (S.D.N.Y. 2000) (reviewing cases and concluding that the Subafilms
position is more widely accepted). But see Curb v. MCA Records, Inc., 898 F.
Supp. 586, 593 (M.D. Tenn. 1995); Expediters Int’l of Washington, Inc. v. Direct
Line Cargo Mgmt. Servs., Inc., 995 F. Supp. 468, 476 (D.N.J. 1998).
However, these rules do not bar a United States copyright case if an
infringing act does occur in the United States in whole or in part. Palmer, 376
F.3d at 1258; Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 52 (2d
Cir. 1939) (holding that court had power over profits made from showing a
copied film outside the country because negatives from which the film was
printed were made in the United States); Rundquist v. Vapiano SE, 798 F.
Supp. 2d 102, 123-24 (D.D.C. 2011); P & D Int’l v. Halsey Pub’g Co., 672
F. Supp. 1429, 1432-33 (S.D. Fla. 1987) (finding subject-matter jurisdiction
over copyright action because complaint alleged that defendant copied U.S.-

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copyrighted film in Florida and then showed the film in international waters
aboard cruise ship) (citing 3 Nimmer on Copyright § 17.02, at 17-5).
Although to date no reported criminal cases have addressed this issue,
the cases cited above provide a sound legal basis for prosecuting criminal
infringement domestically when at least a part of the defendant’s infringing
conduct occurred within the United States. Charging a conspiracy also allows
for domestic jurisdiction over criminal copyright co-conspirators located
outside the United States, if their co-conspirators act inside the country. See,
e.g., Ford v. United States, 273 U.S. 593, 624 (1927) (holding that a conspiracy
charge need not rely on extraterritorial principles if its object crime is in the
U.S. and a co-conspirator commits an act in the U.S. to further the conspiracy);
United States v. Winter, 509 F.2d 975, 982 (5th Cir. 1975).
Additionally, at least in the context of capturing and retransmitting
broadcast signals so as to infringe a copyright owner’s public performance
right, there appears to be some disagreement between the courts as to whether
it is necessary for a “complete” act of infringement to take place in the
United States for the Copyright Act to apply. The Ninth Circuit has taken
the position that at least one “complete” act of infringement must take place
in the United States. See Allarcom Pay Television, Ltd. v. Gen. Instrument
Corp., 69 F.3d 381, 387 (9th Cir. 1995) (holding that the Copyright Act did
not apply to broadcasts of copyrighted material from the United States into
Canada because the infringement was not completed until the signals were
“received and viewed” in Canada). The Second Circuit, however, has strongly
rejected that view, holding that an act of infringement need only be partially
completed in the United States. See Nat’l Football League v. PrimeTime 24 Joint
Venture, 98 CIV. 3778 (LMM), 1999 WL 163181, at *3 (S.D.N.Y. Mar. 24,
1999) (Copyright Act applied where defendant’s “transmission of the signals
captured in the United States is ‘a step in the process by which a protected
work wends its way to its audience,’ although not the only, or the final, step,
and an infringement, even though it takes one or more further steps for the
work to reach the public”), aff’d 211 F.3d 10, 13 (2d Cir. 2000) (according the
Ninth Circuit law “little weight largely because it contains no analysis of the
Copyright Act.”); see also WGN Cont’l Broadcasting Co. v. United Video, Inc.,
693 F.2d 622, 624-25 (7th Cir. 1982) (concluding that an intermediate carrier
is not immune from copyright liability simply because it does not retransmit a
copyrighted signal to the public directly but instead routes the signal to cable
systems, which then retransmit to the public). While Allarcom has generally
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been limited to its specific facts (and has rarely been applied outside of the
Ninth Circuit), prosecutors can avoid the issue, where possible, by charging an
act of infringement completed within the United States. As discussed above,
prosecutors may also avoid the issue by charging a conspiracy.
For more on the lack of extraterritorial application of U.S. copyright law,
see I. Trotter Hardy, U.S. Copyright Office, Project Looking Forward: Sketching
the Future of Copyright in a Networked World, Final Report 132 (1998), available
at http://www.copyright.gov/reports/thardy.pdf.
3. Venue
Crimes “begun in one district and completed in another, or committed in
more than one district, may be inquired of and prosecuted in any district in
which such offense was begun, continued, or completed.” 18 U.S.C. § 3237(a).
Few reported cases have directly addressed this issue in criminal copyright
prosecutions. See United States v. Tucker, 495 F. Supp. 607, 618 (E.D.N.Y. 1980)
(holding that although defendant resided outside district, venue was proper for
grand jury investigation into defendant’s sales of counterfeit sound recordings
because “middleman” in defendant’s scheme resided, and purchaser was
headquartered, in district). Cases addressing venue in analogous cases suggest
that venue would be proper in any district where reproduction or distribution
occurred, or through which pirated works were shipped. Cf. United States v.
DeFreitas, 92 F. Supp. 2d 272, 276-77 (S.D.N.Y. 2000) (holding in criminal
trademark case involving importation and distribution of counterfeit “Beanie
Babies” that offense was a continuing offense and thus venue was proper in
any district where the offense was begun, continued, or completed, i.e., where
products entered the U.S., were shipped, or sold); United States v. Rosa, 17
F.3d 1531, 1541 (2d Cir. 1994) (holding that in conspiracy to transport stolen
goods, venue was proper where the agreement was entered into, or where any
overt act in furtherance of the conspiracy was committed).
4. The First Sale Doctrine—17 U.S.C. § 109
a. Operation of the Doctrine
A common defense to a claim of infringement of the distribution right
is the “first sale” doctrine, codified at 17 U.S.C. § 109, which provides that
“[n]otwithstanding the provisions of section 106(3), the owner of a particular
copy or phonorecord lawfully made under this title, or any person authorized
by such owner, is entitled, without the authority of the copyright owner, to
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63

sell or otherwise dispose of the possession of that copy or phonorecord.” In
other words, once a copyright-holder sells or gives a specific copy to another
person, the copyright-holder generally cannot control how that particular copy
is subsequently sold or transferred. See United States v. Moore, 604 F.2d 1228,
1232 (9th Cir. 1979); see also 2 Nimmer on Copyright § 8.12[B] (discussing
first sale); 4 Nimmer on Copyright § 15.01[A][2] (discussing application of
“first sale” in criminal cases). Putting it in terms of the purchaser’s rights, the
first purchaser and any subsequent purchaser of that specific copy may further
distribute or dispose of that particular copy without the copyright-holder’s
permission.
The first sale doctrine does not grant the purchaser or anyone else the
right to make additional copies of the copy he owns. Making unauthorized
copies of a lawfully-obtained work still violates the law. 4 Nimmer on Copyright
§ 15.01[A][2], at 15-10. Consequently, the first sale doctrine is a defense only
against an allegation of infringement by means of distribution.
Moreover, the first sale doctrine may be invoked by a defendant only for
the distribution of lawfully-made copies. If copies were pirated, the first sale
doctrine does not apply. See United States v. Drum, 733 F.2d 1503, 1507
(11th Cir. 1984) (citing Moore, 604 F.2d at 1232); United States v. Powell,
701 F.2d 70, 72 (8th Cir. 1983). Additionally, a person may not sell or give
away his lawful copy while retaining a backup copy, even a backup copy of
software that is authorized by 17 U.S.C. § 117. See 17 U.S.C. § 117(a)(2)
(requiring destruction of archival copies if continued possession of original
copy ceases to be rightful); see also 17 U.S.C. § 117(b) (allowing transfer of
exact archival copies only with a complete transfer of rights in the original
copy). An unlawfully retained backup copy can be an infringing reproduction.
See Section C.6. of this Chapter for a discussion of the “archival” exception
codified at 17 U.S.C. § 117(a)(2).
The first sale doctrine protects a defendant only if he owned his copy,
not if he merely borrowed or rented it. In fact, the first sale doctrine does
not “extend to [protect] any person who has acquired possession of the copy
or phonorecord from the copyright owner, by rental, lease, loan, or otherwise,
without acquiring ownership of it.” 17 U.S.C. § 109(d) (emphasis added). This is
an important distinction for works such as motion picture film reels, which are
typically distributed to movie theaters under a lease or similar arrangement, and
computer software, which is often distributed subject to a licensing agreement.
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It is not always clear, however, whether a commercial transaction of
copyrighted works is legally a sale or a licensing agreement, which can make
or break a first sale defense. How the parties characterize the transaction to
themselves or others may not be controlling as a matter of law. When a computer
user “purchases” a copy of software through a retail channel or other means, the
licensing agreement may actually assert that the arrangement is not an outright
purchase of a copy but merely a license to use the work. Were these licensing
agreements the last word on the subject, § 109 would not allow the licensee to
resell his software. Yet many courts have recharacterized a software publisher’s
shrinkwrap licensing agreement as a sale when the publisher distributes its
software through retail channels. See Softman Prods. Co. v. Adobe Sys., Inc., 171
F. Supp. 2d 1075 (C.D. Cal. 2001); Novell, Inc. v. Network Trade Ctr., Inc.,
25 F. Supp. 2d 1218, 1230 (D. Utah 1997), vacated in part on other grounds,
187 F.R.D. 657 (D. Utah 1999); ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640
(W.D. Wis. 1996), rev’d on other grounds, 86 F.3d 1447 (7th Cir. 1996); see also
Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005); Mark Lemley, Intellectual
Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239, 1244 n.23 (1995)
(discussing cases). Other courts have taken the opposite position, however,
holding that a copy of software obtained subject to license is not subject to
the first sale doctrine or other benefits of “ownership.” See Apple Inc. v. Psystar
Corp. 658 F.3d 1150, 1155-56 (9th Cir. 2011); Vernor v. Autodesk, Inc., 621
F.3d 1102 (9th Cir. 2010), cert. denied, 132 S. Ct. 105 (2011); Adobe Sys., Inc.
v. Stargate Software Inc., 216 F. Supp. 2d 1051, 1058 (N.D. Cal. 2002); Adobe
Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086, 1089 (N.D. Cal. 2000);
Microsoft Corp. v. Software Wholesale Club, Inc., 129 F. Supp. 2d 995, 1002
(S.D. Tex. 2000) (citing Microsoft Corp. v. Harmony Computers & Elec., Inc.,
846 F. Supp. 208, 212-14 (E.D.N.Y. 1994)); see also Lemley, 68 S. Cal. L. Rev.
at 1244 n.23.
Although no reported criminal case to date appears to have addressed
the specific issue of whether an unauthorized transfer of a lawfully-obtained
copy of software subject to an end-user license agreement can constitute
criminal copyright infringement, the question may yet arise in cases involving
“repackaged” software, in which some elements of the software package are
genuine, while others are copied or altered. See, e.g., Stargate Software Inc.,
216 F. Supp. 2d at 1058 (rejecting argument that first sale doctrine should
apply to academic versions of software repackaged and sold as retail versions).
In such cases, prosecutors may wish to consider other charges, such as 18
U.S.C. § 2318 (counterfeit or illicit labels, documentation, or packaging for
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copyrighted works). See United States v. Harrison, 534 F.3d 1371 (11th Cir.
2008) (holding that the first sale doctrine does not apply to 18 U.S.C. § 2318).
An important question concerning first sale, recently resolved by the
Supreme Court, concerns whether it applies to copies produced abroad and
later imported into the United States. Federal courts had reached differing
conclusions on this issue. See, e.g., Quality King Distribs., Inc. v. L’anza
Research Int’l, Inc., 523 U.S. 135, 145 (1998) (first sale doctrine under § 109
permits reimportation and resale of copy originally produced legally in the
United States); Omega S. A. v. Costco Wholesale Corp., 541 F. 3d 982, 986
(9th Cir. 2008) (§ 109 permits resale of copies manufactured abroad only if
an authorized first sale occurs within the United States), aff ’d by an equally
divided court, 562 U. S. ___ (2010); Sebastian Int’l, Inc. v. Consumer Contacts
(PTY) Ltd., 847 F. 2d 1093, 1098 n.1 (3rd Cir. 1988) (limitation of the first
sale doctrine to copies made within the United States “does not fit comfortably
within the scheme of the Copyright Act”). In Kirtsaeng v. John Wiley & Sons,
Inc., No. 11-697, __ U.S. __ (Mar. 19, 2013), the Supreme Court held that
the first sale provision of § 109 applies to copies “lawfully made” outside the
United States, thus permitting purchasers of copies manufactured abroad to
import such copies into the U.S. and sell or otherwise distribute them within
the U.S. without permission from the copyright owner, so long as the copies
were originally produced with the copyright owner’s authorization.
b. Affirmative Defense or Part of the Government’s Case-in-Chief
Courts disagree as to whether the government must prove absence of “first
sale” as part of its case-in-chief in a criminal case. See 4 Nimmer on Copyright
§ 15.01[A][2], at 15-8 to 15-9. In civil cases, “first sale” is an affirmative
defense. See 2 Nimmer on Copyright § 8.12[A]; H.R. Rep. No. 94-1476, at
81 (1976) (“It is the intent of the Committee, therefore, that in an action
to determine whether a defendant is entitled to the privilege established by
section 109(a) and (b), the burden of proving whether a particular copy was
lawfully made or acquired should rest on the defendant.”), reprinted in 1976
U.S.C.C.A.N. 5659, 5695.
The better rule is to apply the civil rule in criminal cases. See, e.g., United
States v. Larracuente, 952 F.2d 672, 673-74 (2d Cir. 1992); United States v.
Goss, 803 F.2d 638, 643-44 (11th Cir. 1986); United States v. Drum, 733
F.2d 1503, 1507 (11th Cir. 1984). There is no good reason for shifting an
affirmative defense in civil cases to an element of the offense in criminal cases,
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given that the government must already prove that the defendant engaged in
infringement willfully. Yet several cases state the opposite, that in criminal cases
the government must negate first sale as an element of the offense. See, e.g.,
United States v. Cohen, 946 F.2d 430, 434 (6th Cir. 1991); United States v.
Sachs, 801 F.2d 839, 842 (6th Cir. 1986); United States v. Powell, 701 F.2d 70,
72-73 (8th Cir. 1983); United States v. Moore, 604 F.2d 1228, 1232-33 (9th
Cir. 1979); United States v. Wise, 550 F.2d 1180, 1191-92 (9th Cir. 1977);
United States v. Atherton, 561 F.2d 747, 749 (9th Cir. 1977); United States v.
Drebin, 557 F.2d 1316, 1326 (9th Cir. 1977); United States v. Wells, 176 F.
Supp. 630, 633 (S.D. Tex. 1959).
c. Disproving First Sale at Trial
The easiest way to negate the first sale doctrine is to introduce evidence
of reproduction of unauthorized copies. Two types of circumstantial proof
typically suffice. First, the government can introduce evidence that the
defendant obtained his copies illegitimately. See Moore, 604 F.2d at 1232
(holding that government may establish absence of first sale by circumstantial
evidence, as well as by tracing distribution); United States v. Whetzel, 589 F.2d
707, 711-12 (D.C. Cir. 1978) (holding that tapes’ illicit origin was shown by
labels on tapes listing a manufacturer with a non-existent address, tapes’ low
price, and the circumstances of their sale), abrogated on other grounds, Dowling
v. United States, 473 U.S. 207 (1985). Factors indicating that copies were
obtained illicitly include the sale of copies at a price far below the legitimate
market value, the distribution of copies of inferior quality, the existence of
copies with identical serial numbers, and the presence of false information on
the copies, such as a false address for the manufacturer, fictitious labels, or sales
under suspicious circumstances. See, e.g., Drum, 733 F.2d at 1507 (rebuttal
of first sale defense included direct and circumstantial evidence concerning
fictitious labels, low prices, and clandestine sale); Whetzel, 589 F.2d at 712 (sale
of copies of tapes from the back of a van in a parking lot).
Second, the government can introduce evidence that the copyright holder
never sold copies of the work at all, which shows that the defendant could
not have obtained ownership of legitimate copies. See United States v. Sachs,
801 F.2d 839 (6th Cir. 1986) (holding that government negated the first sale
doctrine with respect to movie videotapes with evidence that the original
movies had never been sold legitimately in same format); United States v.
Drebin, 557 F.2d 1316 (9th Cir. 1977) (holding that government proved the
absence of first sale through evidence that copyrighted movies had never been
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sold or transferred and that licenses transferring limited rights for distribution
and exhibition of the films for a limited time were not “sales” for purposes of
the first sale doctrine). But see United States v. Atherton, 561 F.2d 747 (9th
Cir. 1977) (holding that government failed to prove the absence of first sale
because, although the copyright owner never “sold” film copies, it permitted a
major television network to permanently retain copies and sold scrap film to
salvage company for consideration, all of which fell within the definition of
first sale and could have been the defendant’s source).
The government need not account for the distribution of every copy of a
work. See, e.g., Moore, 604 F.2d at 1232 (“[T]he Government can prove the
absence of a first sale by showing that the [copy] in question was unauthorized,
and it can establish this proof ... by circumstantial evidence from which a
jury could conclude beyond a reasonable doubt that the recording was never
authorized and therefore never the subject of a first sale.”); see also Sachs, 801
F.2d at 843 (holding that the government need not trace every single copy to
its origins, because “[t]he other recognized method of satisfying [the first sale]
doctrine is for the government to ... show that the copies in question have
illegitimate origins”); Drum, 733 F.2d at 1507 (“The government may prove the
absence of a first sale by direct evidence of the source of the pirated recordings or
by circumstantial evidence that the recording was never authorized.”) (citations
omitted); Whetzel, 589 F.2d at 711 (“It was not required to disprove every
conceivable scenario in which appellant would be innocent of infringement.”).
d. Special Rules for Rental, Lease, and Lending
Although the first sale doctrine extends to almost all types of copyrighted
works, it has some limitations with respect to some types of sound recordings
and computer programs, which generally may be resold or given away but
cannot be rented, leased, or loaned without the copyright-owner’s permission.
See 17 U.S.C. § 109(a), (b)(1)-(2) (describing exception and the types of
computer programs that do not qualify for the exception). But see § 109(b)
(2)(A) (providing that this does not apply to the rental, lease, or loan of a
phonorecord for nonprofit purposes by a nonprofit library or educational
institution). Regardless, the unauthorized (and thus infringing) rental or
lending of sound recordings and computer programs is not subject to criminal
penalties. See § 109(b)(4).
Although unauthorized rental or leasing of certain types of works is not
directly subject to criminal sanctions, businesses that advertise or engage in
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this type of conduct might still be subject to criminal copyright infringement
penalties. For example, assume that a business rents CDs containing music
and tells its customers to “burn it and return it,” i.e., to make a copy before
bringing it back. Would the above rules exempt this business from criminal
prosecution? On the one hand, the answer appears to be “yes,” since 17 U.S.C.
§ 109(b)(4) states that the unauthorized rental of sound recordings “shall not
be a criminal offense.” On the other hand, this conduct may extend beyond
mere “unauthorized rental” to active solicitation, aiding-and-abetting, or
conspiracy to commit criminal copyright infringement. No published case has
yet addressed this issue.
5. Fair Use
The fair use doctrine is an affirmative defense to copyright infringement. It
allows the unauthorized use of copyrighted material under certain circumstances
generally limited to useful or beneficial purposes with minimal impact on the
market for the work. Specifically, the fair use doctrine, codified at 17 U.S.C.
§ 107, allows the unauthorized use of copyrighted works “for purposes such as
criticism, comment, news reporting, teaching ..., scholarship, or research” and
other, unspecified, purposes and uses.
Fair use is designed to ensure that the rights of authors are balanced with
the interest of the public in the free flow of information. See, e.g., Pierre Leval,
Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1110 (1990) (commentary
by Judge Pierre Leval, United States District Court for the Southern District of
New York). Congress has noted that fair use is the most important limitation
on the exclusive rights granted copyright owners, H.R. Rep. No. 94-1476, at 65
(1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5678, and the Supreme Court
has characterized fair use as one of copyright law’s built-in accommodations
to the First Amendment. See Eldred v. Ashcroft, 537 U.S. 186, 219-20 (2003).
By design, the fair use doctrine is fluid and applies not according to definite
rules, but rather according to a multi-factor balancing test. See H.R. Rep. No.
94-1476, at 66 (1976). The statute cites four non-exclusive factors:
(1) the purpose and character of the use, including whether such
use is of a commercial nature or is for nonprofit educational
purposes;
(2) the nature of the copyrighted work;

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(3) the amount and substantiality of the portion used in relation
to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value
of the copyrighted work.
17 U.S.C. § 107. Other unspecified factors may be appropriate. It would be
difficult to articulate a more determinate set of fair use rules, given the variety
of copyrighted works, their uses, and the situations in which they can be used.
Consequently, both through case law and statutory codification, fair use has
historically been decided on a case-by-case basis looking at the totality of the
facts at hand. See H.R. Rep. No. 94-1476, at 65-66 (1976). Although the fair
use doctrine has developed primarily in civil cases, those cases have precedential
weight in criminal cases.
The first factor to consider is the purpose and character of the use. 17
U.S.C. § 107(1). A commercial use is presumptively unfair, whereas for a
noncommercial, nonprofit activity, “[t]he contrary presumption is appropriate.”
Sony Corp. of Am. v. Universal Studios, 464 U.S. 417, 449 (1984). Nevertheless,
“the mere fact that a use is educational and not for profit does not insulate it
from a finding of infringement, any more than the commercial character of a
use bars a finding of fairness.” Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569,
584 (1994).
Another consideration relevant to the first factor is whether the use is
“transformative” or, in other words, adds something new or different beyond a
mere repackaging or restatement of the original: “Although such transformative
use is not absolutely necessary for a finding of fair use, the goal of copyright,
to promote science and the arts, is generally furthered by the creation of
transformative works.” Id. at 579 (citation omitted); see also Leval, 103 Harv.
L. Rev. at 1111 (“The use must be productive and must employ the quoted
matter in a different manner or for a different purpose from the original. A
quotation of copyrighted material that merely repackages or republishes the
original is unlikely to pass the test.”). If a work is transformative, other factors
that normally weigh against finding of fair use, such as the commercial nature
of the use, bear less weight. See Acuff-Rose, 510 U.S. at 579.
The second factor is the nature of the copyrighted work. See 17
U.S.C. § 107(2). “This factor calls for recognition that some works are closer
to the core of intended copyright protection than others.” Acuff-Rose, 510 U.S.
at 586. Fair use is more difficult to establish in the use of fictional or purely
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creative or fanciful works, as opposed to more factual or historical (yet still
copyrightable) works, such as recollections of public figures, or depictions
of newsworthy events. See id. “The law generally recognizes a greater need to
disseminate factual works than works of fiction or fantasy.” Harper & Row,
Publishers, Inc. v. Nation Enters., 471 U.S. 539, 563 (1985).
The third factor is the amount and substantiality of the use “in relation to
the copyrighted work as a whole.” See 17 U.S.C. § 107(3). A defense of fair
use is less likely to succeed if the portion of the copyrighted material used is
substantial in quantity or importance. See Harper & Row, 471 U.S. at 56466 (holding news magazine’s 300-word excerpt of book not to be fair use
because quoted sections were key passages). However, a use can be fair even
if it copies the entire work. See Online Policy Group v. Diebold, Inc., 337 F.
Supp. 2d 1195 (N.D. Cal. 2004) (granting summary judgment to group that
had published voting machine manufacturer’s entire email archive to publicly
expose machines’ flaws); Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir.
2003) (holding defendant’s copying of entire images to create online searchable
database of “thumbnails” was fair use).
The fourth factor is how substantially the use affects the potential market
for the copyrighted work or the work’s actual value. See 17 U.S.C. § 107(4).
“[T]o negate fair use one need only show that if the challenged use ‘should
become widespread, it would adversely affect the potential market for the
copyrighted work.’ This inquiry must take account not only of harm to the
original but also of harm to the market for derivative works.” Harper & Row,
471 U.S. at 568 (citations omitted). The Supreme Court has emphasized the
importance of this factor in cases of noncommercial use. Sony, 464 U.S. at 451
(“A challenge to a noncommercial use of a copyrighted work requires proof
either that the particular use is harmful, or that if it should become widespread,
it would adversely affect the potential market for the copyrighted work.”). See
Harper & Row, 471 U.S. at 540-41 (finding that harm to potential market was
indicated by fact that magazine cancelled its contract to reprint segment of
book after defendant published article quoting extensively from book).
Again, these are non-exclusive factors that may be supplemented as
technology and circumstances require. See 17 U.S.C. § 107.
a. Unpublished Works
A defendant’s use of an unpublished copyrighted work may qualify as a
fair use. In 1992, Congress amended 17 U.S.C. § 107 to make explicit that
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“[t]he fact that work is unpublished shall not itself bar a finding of fair use if
such finding is made upon consideration of all the above factors [in § 107(1)(4)].” Act of Oct. 24, 1992, Pub. L. No. 102-492, 106 Stat. 3145 (1992); see
also H.R. Rep. No. 102-836, at 7 (1992), reprinted in 1992 U.S.C.C.A.N.
2553, 2559 (legislative history underscores that Congress intended there to be
no per se rule barring the fair use of unpublished works). This was primarily,
but not exclusively, out of concern for the needs of biographers, historians,
and publishers concerned with court decisions that suggested that they could
not use unpublished material of historical interest—such as the unpublished
letters and diaries of major authors or public figures—in books or other serious
treatments of historical figures and events. See id. at 4-9 (citing Salinger v.
Random House, Inc., 650 F. Supp. 413 (S.D.N.Y. 1986), rev’d, 811 F.2d 90 (2d
Cir.), cert. denied, 484 U.S. 890 (1987); New Era Publ’ns Int’l, ApS v. Henry
Holt & Co., 684 F. Supp. 808 (S.D.N.Y. 1988); New Era Publ’ns Int’l, ApS v.
Henry Holt & Co., 695 F. Supp. 1493 (S.D.N.Y. 1988), aff’d on other grounds,
873 F.2d 576 (2d Cir. 1989)). Congress heeded this concern and thereafter
amended the fair use statute to include the fair use of unpublished works, not
limiting it to works of historic value.
b. Fair Use in Criminal Cases
Although the fair use doctrine has been developed mainly through civil
cases, it is a defense to a charge of infringement, and thus a legitimate defense in
criminal cases. However, fair use rarely comes up in the criminal context, most
likely because prosecutors are reluctant to prosecute where fair use is a serious
issue. A fair use is not an infringing use, and without an infringement there are
no grounds for copyright prosecution. See 17 U.S.C. § 107 (“[T]he fair use of a
copyrighted work ... is not an infringement of copyright.”); 17 U.S.C. § 506(a)
(specifying grounds for prosecuting “[a]ny person who willfully infringes a
copyright”) (emphasis added). Moreover, a defendant who believed in good
faith that he was engaging in fair use has a complete defense to the mens rea
element, which requires the government to prove that the defendant infringed
willfully. See Section B.2.a. of this Chapter. (As indicated in Section B.2.b., a
bad-faith claim of fair use, on the other hand, might help establish willfulness.)
Prosecutors are—and generally should be—reluctant to seek charges where the
defendant acted “for purposes such as criticism, comment, news reporting,
teaching ..., scholarship, or research” or any other use with a beneficial public
purpose. See 17 U.S.C. § 107.

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When the defendant is charged with violating 17 U.S.C. § 506(a)(1)
(A)—infringement for purposes of commercial advantage or private financial
gain—fair use will ordinarily not be a defense because commercial uses
are presumptively unfair. Sony, 464 U.S. at 449. On the other hand, some
commercial uses, such as commercial parodies of other works, have been found
to be fair. See Acuff-Rose, 510 U.S. at 594.
Because of the fair use doctrine’s concern with noncommercial uses, fair
use is more likely to pose a significant defense in criminal cases that do not
allege a profit motive, such as large-scale infringement under § 506(a)(1)(B)
and certain § 506(a)(1)(C) offenses. However, courts have rejected fair use
arguments in civil cases against peer-to-peer file-traders who had no direct
commercial motive. See BMG Music v. Gonzalez, 430 F.3d 888, 890 (7th Cir.
2005) (finding that a peer-to-peer user who downloaded at least 30 and as
many as 1300 songs, and kept them, did “not engage[] in a nonprofit use”
for purposes of fair use analysis); Sony BMG Music Entm’t v. Tenenbaum,
672 F. Supp. 2d 217, 227-28 (D. Mass. 2009) (granting plaintiff’s motion
for summary judgment as to fair use defense, despite finding that defendant’s
acts of downloading and distributing 30 copyrighted songs did not constitute
“commercial” use, where defendant’s use “was not accompanied by any public
benefit or transformative purpose that would trigger the core concerns of the
doctrine”).
That said, there is a wide gulf between the typical criminal copyright case
and the typical case in which fair use is a legitimate defense. In most criminal
cases, the defendant does not even arguably act “for purposes such as criticism,
comment, news reporting, teaching ..., scholarship, or research.” See 17 U.S.C.
§ 107. Furthermore, many criminal prosecutions involve the wholesale piracy
of commercially popular works, in which a fair use defense would be undercut
by the fair use factors concerning “the amount and substantiality of the portion
used in relation to the copyrighted work as a whole,” and “the effect of the use
upon the potential market for or value of the copyrighted work.” § 107(3),
(4). The works are generally copied in their entirety, and the wide availability
of the free, pirated copies (which suffer no degradation in quality in digital
form) can have a drastic effect on the potential market for legitimate works.
A strong showing on these factors will help overcome the presumption that
noncommercial use is fair.

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6. “Archival Exception” for Computer Software—17 U.S.C. § 117
Section 117 of Title 17 provides a limited exception to the blanket rule
against copying, by allowing one who owns a copy of a computer program to
copy the program as necessary to use the program or do machine maintenance
or repair, and as an archival backup, subject to certain limitations. Specifically,
§ 117(a) provides that “it is not an infringement [of copyright] for the owner
of a copy of a computer program to make or authorize the making of another
copy or adaptation of that computer program” under two circumstances. The
first is if the making of the copy or adaptation is “an essential step in the
utilization of the computer program in conjunction with a machine, and that
[the copy] is used in no other manner.” 17 U.S.C. § 117(a)(1). Essentially, this
allows the lawful owner of a piece of software to install it on his machine, even
if doing so requires copying the program from a CD-ROM to the hard drive
or loading it from the hard drive into RAM, both of which are considered
reproduction under copyright law. See Micro-Sparc, Inc., v. Amtype Corp., 592
F. Supp. 33 (D. Mass. 1984) (holding that purchasers of programs sold in
printed form do not infringe copyright by typing code into computer in order
to use the programs); Summit Tech., Inc. v. High-Line Med. Instruments Co., 922
F. Supp. 299 (C.D. Cal. 1996) (holding that owners of ophthamological laser
system did not infringe copyright by turning on system to use it, causing copy
of manufacturer’s data table to be loaded into system RAM); cf. MAI Sys. Corp.
v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993) (holding that loading of
copyrighted software into RAM by service company constitutes reproduction).
The second circumstance in which § 117 allows copying is if the copy is
“for archival purposes only and that all archival copies are destroyed in the
event that continued possession of the computer program should cease to be
rightful.” 17 U.S.C. § 117(a)(2). This provision allows one who owns a piece
of software to make a backup copy for safekeeping, but requires him to destroy
his backup copies if he sells or otherwise transfers his original copy or if his
ownership otherwise ceases to be rightful.
A third subsection of § 117 provides it is not an infringement for a
machine’s owner or lessee to make or authorize the making of a copy of a
computer program if the copy is made solely as a result of the activation of a
machine containing a lawful copy of the software, and the copy is used solely
to repair or maintain the machine, and is destroyed immediately thereafter.
17 U.S.C. § 117(c); see also Storage Tech. Corp. v. Custom Hardware Eng’g &
Consulting, Inc., 431 F.3d 1374, 1375 (Fed. Cir. 2005).
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Section 117’s exceptions benefit the “owner of a copy of a computer
program” or, in the case of machine repair and maintenance, “the owner or
lessee of a machine.” 17 U.S.C. § 117(a), (c). However, because most computer
software is distributed subject to a license, rather than a conventional outright
sale, the question arises (in much the same way as it does in the context of
“first sale” under § 109) whether § 117 allows copying by a person who has
legally obtained a copy of a computer program, but licenses rather than “owns”
the software. See the discussion of first sale in Section C.4. of this Chapter. As
with the analogous first sale question, courts are split on the issue. Compare
Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005) (holding client to be
an “owner,” for § 117(a) purposes, of copies of computer programs written
for it by consultant despite lack of formal title in copies, because it had paid
consultant to develop programs for its sole benefit, copies were stored on client’s
server, and client had right to use or discard copies as it saw fit) with CMAX/
Cleveland, Inc. v. UCR, Inc., 804 F. Supp. 337 (M.D. Ga. 1992) (holding that
licensee of copyrighted computer software system and its employees were not
entitled to computer program owner’s defense to copyright-holder’s copyright
infringement action, because the licensee and employees never “owned” copy
of the program, and there was evidence that the licensee was going to market
its program); cf. ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310
(N.D. Ill. 1990) (holding defendant not entitled to § 117 exception because it
acquired copy from competitor and possession was unauthorized).
Some sellers of pirated software display a disclaimer or other notice claiming
that their distribution of unauthorized copies is somehow permitted under 17
U.S.C. § 117. Such claims are baseless. Although there are no reported criminal
cases addressing this defense, courts have interpreted § 117 narrowly. See, e.g.,
Micro-Sparc, Inc., 592 F. Supp. at 35 (while § 117 allowed owners of written
copy of source code to type it in to their own computers, it did not permit thirdparty business to type in source code and sell it on diskette). Moreover, the fact
that a defendant was sufficiently aware of copyright issues to make a frivolous
or bad-faith claim of compliance with § 117 may help establish willfulness.
Cf. United States v. Gardner, 860 F.2d 1391, 1396 (7th Cir. 1988) (holding
“Notice of Warning” by seller of “black boxes” for receiving unauthorized cable
television, disclaiming liability for any illegal uses, “establish[es] that he was
well aware that his actions were unlawful”); United States v. Knox, 32 F.3d 733,
754 (3d Cir. 1994) (rejecting argument that disclaimers in brochure stating
that child pornography videos were legal disproved the mens rea element
and because “[i]f anything, the need to profess legality should have alerted
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[defendant] to the films’ dubious legality”); Rice v. Paladin Enters., Inc., 128
F.3d 233, 254 (4th Cir. 1997) (holding that jury could find the “For academic
study only!” disclaimer in promotional sales catalog for “Hit Man” book “to be
transparent sarcasm designed to intrigue and entice”).

D.

Emerging and Special Issues

Most of the special issues in criminal copyright law concerning registration,
Internet piracy, and pre-release piracy have been addressed throughout this
chapter. Additional emerging areas involving streaming and linking sites are
briefly highlighted below. Prosecutors who encounter emerging and special
issues involving streaming, linking sites or others not addressed in this chapter
should contact CCIPS at (202) 514-1026 for further advice or to suggest them
for an update to be published in the electronic edition of this Manual.
1. Internet Streaming
The past decade has seen a rapid rise in the use of Internet “streaming”
technology as a means to disseminate content online. “Streaming” generally
refers to the delivery of digital media content in real time, so that it may be
watched, listened to, or played contemporaneously with the transfer of the
media data to a recipient’s device. Popular streaming media sites and services
currently include YouTube, Hulu, Vimeo, Pandora, and Spotify. Netflix and
Amazon, for instance, offer online streaming of movies in addition to offering
copies of movies for sale or rental, and (in the case of Amazon) offering
downloads of music files for a fee. There are also a large and growing number of
Internet sites that offer infringing content via streaming, many of which derive
substantial revenues through advertising or user subscription fees.
In contrast to a “download” model, in which a recipient receives a complete
and permanent copy of a media file, when media content is delivered solely
for streaming, the recipient will generally not retain a complete or permanent
copy of the media file on the receiving device (although pieces of the media file
being received may be buffered or stored temporarily as part of the streaming
process). Streaming is also comparatively resource intensive, as playing media
files to many different users in real time, without pauses or gaps, requires
powerful servers and significant amounts of Internet bandwidth. Widespread
use of streaming has become an increasingly viable option to disseminate media
content both legitimately and illegitimately as costs for data storage processing
power and bandwidth have fallen significantly.
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Although currently unsettled, existing criminal copyright laws (as of this
writing) are not ideally suited to address serious cases of infringing streaming.
The penalty provisions in 18 U.S.C. §2319 were drafted in an era when the vast
majority of online infringement involved the creation and transfer of complete
and permanent electronic copies. As a result, existing criminal copyright law
provides felony penalties only for infringements that involve the “reproduction”
or “distribution” of a minimum number of copies above a threshold value. To
the extent that streaming of copyrighted works does not involve creating or
transferring complete or permanent copies of a work, it is generally viewed as
implicating copyright’s “public performance” and “public display” rights in a
work, rather than the “reproduction” or “distribution” rights. See, e.g., United
States v. Am. Soc’y of Composers, Authors, and Publishers, 485 F. Supp. 2d 438,
442-47 (S.D.N.Y. 2007) (distinguishing between distribution and performance
of digital music); 3 William F. Patry on Copyright § 8:23 (2012). Accordingly,
an illegal streaming site that willfully infringes copyrighted works by streaming
may not violate the reproduction or distribution rights to a sufficient degree to
be eligible for felony copyright penalties.
As of this writing, there have been several legislative proposals to
amend criminal copyright penalties to address significant cases involving
Internet streaming. See, e.g., Administration’s White Paper on Intellectual
Property Enforcement Legislative Recommendations at 10 (March 2011),
available at http://www.whitehouse.gov/sites/default/files/ip_white_paper.
pdf; Commercial Felony Streaming Act, S. 978 112th Cong. (2011). In
general, these proposals would expand copyright felony penalties to apply to
infringements of the “public performance” or “public display” rights under
certain circumstances.
Setting aside possible legislative changes, prosecutors have other options
to pursue significant cases involving Internet streaming. For example, even
though a site may be primarily engaged in Internet streaming, the site may
also be engaged in related conduct that involves felony reproduction or
distribution. Some sites that offer streaming of infringing content also allow
users to download complete copies, typically for an additional fee. Assembling
a pirate streaming site also requires the infringing content to be copied onto
the site’s servers. This copying, if sufficient to meet the numeric and monetary
thresholds (and other elements) of 18 U.S.C. § 2319, may form a sufficient
basis for a felony charge.

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Existing law also provides misdemeanor penalties for willful infringements
involving any of the exclusive rights protected by copyright (not just reproduction
and distribution) when committed for purposes of commercial advantage or
private financial gain. See 17 U.S.C. § 506(a)(1)(A); 18 U.S.C. 2319(b)(3).
Because streaming is relatively resource intensive, major infringing streaming
sites are generally supported by advertising or subscriber fees, and, therefore,
one option for pursuing a site willfully engaged in infringing streaming is to
charge one or more misdemeanors.
2. Cyberlockers and Linking Sites
Although remote storage of data files has long been a staple use of the
internet and other online services (see, e.g., Electronic Communications Privacy
Act (ECPA) of 1986, Pub. L. No. 99-508, 100 Stat. 1848 (1986) (creating
definition, at 18 U.S.C. § 2711(2), of “remote computing service”)), the past
several years have witnessed a rapid rise in the use of a new generation of online
file storage services, referred to generically by such terms as “cloud storage” or
“web storage” services, “webhards,” or “cyberlockers.” A wide range of sites
and services fall into this category, including Amazon’s Cloud Drive, Apple’s
iCloud, Microsoft’s SkyDrive, Google Drive, Dropbox, Rapidshare, MediaFire,
and Filesonic. The specific features, intended uses, and target markets for these
services vary widely; some are designed and marketed primarily for data backup
or for access to personal files while traveling, while some are focused more
on facilitating transfers of large data files to others. Many provide substantial
amounts of storage for free. The capability of cyberlocker services to disseminate
large media files has led to their use in large scale piracy of movies, music,
software, and other copyrighted works.
Although the use of cyberlockers to infringe copyright is a relatively recent
trend, the same principles apply to cyberlockers as to other types of online
infringement. Individual users of cyberlockers who make use of cyberlockers
to reproduce, distribute, or otherwise infringe copyright willfully may be
prosecuted criminally, provided the other elements of the criminal copyright
statute (e.g., minimum numeric and monetary thresholds; commercial
advantage or private financial gain; online distribution of pre-release works)
are met. Operators of cyberlockers may also be subject to prosecution for
criminal copyright infringement where they willfully distribute or disseminate
infringing content, or under theories of aiding and abetting or conspiracy to
commit criminal copyright infringement. See 18 U.S.C. §§ 2, 371.
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To the extent that cyberlockers are used to distribute large media files
to a group or to the public, they function much like popular user-generated
content (“UGC”) sites like YouTube or Vimeo. However, a common feature
that generally distinguishes cyberlockers from UGC sites is that cyberlockers
are generally not designed to be searchable by outside users or the web-crawlers
used by search engines to index publicly-available content on the Internet. On
many cyberlocker sites, the only way to access a particular file is to know the
specific URL or address where the file is located (e.g., a complex and difficultto-guess address such as, “http://www.cyberlocker.com/xyzcvbRT1908973”).
Partly as a result, an ecosystem of “linking sites” has developed that compile and
categorize links to media files located on cyberlocker sites (as well as BitTorrent
or other links to P2P networks), enabling users to search for and locate
particular files, including pirated media content. Many of these linking sites
are supported by advertising, and some may also receive affiliate commissions
in exchange for driving traffic to a cyberlocker or other content-hosting site.
The fact that a “pure” linking site does not host infringing content itself
may present additional challenges to criminal prosecution. Most courts that
have addressed the issue in civil cases have held that merely providing links
to infringing content does not violate the distribution right or otherwise
constitute direct copyright infringement (although such conduct may still
result in secondary liability under a theory of contributory or vicarious
infringement). See, e.g., Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146
(2007); Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1202 n.12
(N.D. Cal. 2004) (“[H]yperlinking per se does not constitute direct copyright
infringement because there is no copying.”); Arista Records, Inc. v. MP3Board,
Inc., No. 00 CIV 4660 (SHS), 2002 WL 1997918, at *4 (S.D.N.Y. Aug. 29,
2002) (linking to content does not violate the distribution right or constitute
direct infringement). The extent to which merely linking to infringing content
hosted by other sites may constitute criminal copyright infringement under 17
U.S.C. § 506 has not been conclusively resolved by the courts. Regardless of
whether linking itself amounts to a substantive violation of § 506, however,
defendants who facilitate infringement by others by providing links to
infringing material online may nevertheless by prosecuted under theories of
aiding and abetting (18 U.S.C. § 2) or conspiracy (18 U.S.C. § 371), provided
that the other requisite elements of criminal infringement (e.g., willfulness,
numeric and monetary thresholds, online distribution of pre-release work) can
be shown.
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E.

Penalties
1. Statutory Penalties

Whereas the substantive crime of copyright infringement is set forth at 17
U.S.C. § 506(a), the penalties for that conduct are set forth at 18 U.S.C. § 2319.
See 17 U.S.C. § 506(a) (“Any person who willfully infringes a copyright shall
be punished as provided under section 2319 of title 18.”).
A misdemeanor carries a sentence of up to one year of imprisonment and
a $100,000 fine or twice the monetary gain or loss. See 18 U.S.C. §§ 2319(b)
(3),(c)(3), 3571(b)(5), (d). For the crimes that qualify as misdemeanors, see
Section B.5. of this Chapter.
A first-time felony conviction under 17 U.S.C. § 506(a)(1)(A) carries a fiveyear maximum sentence of imprisonment and a fine up to $250,000 or twice
the monetary gain or loss; repeat offenders face the same fine and ten years of
imprisonment. 18 U.S.C. §§ 2319(b)(1),(2), 3571(b)(3),(d) (specifying fines
for Title 18 offenses where the fine is otherwise unspecified).
A first-time felony conviction under 17 U.S.C. § 506(a)(1)(B) carries a
three-year maximum sentence of imprisonment and a fine up to $250,000
or twice the monetary gain or loss; repeat offenders face the same fine and six
years’ imprisonment. 18 U.S.C. §§ 2319(c)(1),(2), 3571(b)(3),(d).
A first-time felony conviction under 17 U.S.C. § 506(a)(1)(C) carries a
three-year maximum sentence—five years if the offense was committed for
purposes of commercial advantage or private financial gain—and a fine of
$250,000 or twice the monetary gain or loss; repeat offenders face the same
fine and twice the jail time (six or ten years, depending on whether the offense
was committed for purposes of profit). 18 U.S.C. §§ 2319(d), 3571(b)(3), (d).
2. Sentencing Guidelines
All sentencing guideline issues concerning the criminal copyright statute
are covered in Chapter VIII of this Manual.

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F.

Other Charges to Consider

Prosecutors may wish to consider the following crimes in addition to or in
lieu of criminal copyright charges.
•

Aiding-and-abetting, inducement, and conspiracy

Prosecutors may, for strategic reasons, wish to bring accessory charges,
such as aiding-and-abetting or inducement, 18 U.S.C. § 2, or conspiracy, 18
U.S.C. § 371. See, e.g., United States v. Sachs, 801 F.2d 839 (6th Cir. 1986)
(affirming conviction for aiding-and-abetting and conspiring to infringe in
motion picture copyright infringement case); United States v. Allan, No. 95CR-578-01, 2001 WL 1152925 (E.D. Pa. Sept. 18, 2001) (denying motion to
vacate sentence on defendant’s convictions for, among other things, copyright
infringement, aiding-and-abetting, and conspiracy).
Aiding-and-abetting and inducement of criminal copyright infringement
under 18 U.S.C. § 2 are similar to the “inducement” theory of secondary
liability the Supreme Court recently endorsed in Metro Goldwyn-Mayer Studios,
Inc. v. Grokster, 545 US 913 (2005). Although Grokster was a civil case, further
decisions in the case on remand, as well as subsequent civil litigation on the
same topic, will likely provide further guidance on how an inducement theory
may be applied in criminal copyright cases.
•

Trafficking in recordings of live musical performances,
18 U.S.C. § 2319A

As discussed in Section B.1.a.i. of this Chapter, a work must be fixed in
a tangible medium in order to enjoy copyright protection. Thus, live musical
performances are not protected by copyright unless they are “fixed” by an audio
recording authorized by the performer. However, the law provides copyrightlike protections for live musical performances by prohibited unauthorized
recordings of such performances, and trafficking in such recordings. See 17
U.S.C. § 1101 (providing civil remedies); 18 U.S.C. § 2319A (criminal
sanctions). These protections were enacted in 1994 in part to comply with
obligations under international copyright treaties that require protection for
musical performances. See Uruguay Round Agreements Act, Pub. L. No. 103465, 108 Stat. 4809 (1994). Specifically, 18 U.S.C. § 2319A(a) subjects to
criminal sanctions:
[w]hoever, without the consent of the performer or performers
involved, knowingly and for purposes of commercial advantage
II. Criminal Copyright Infringement

81

or private financial gain - (1) fixes the sounds or sounds and
images of a live musical performance in a copy or phonorecord,
or reproduces copies or phonorecords of such a performance
from an unauthorized fixation; (2) transmits or otherwise
communicates to the public the sounds or sounds and images
of a live musical performance; or (3) distributes or offers to
distribute, sells or offers to sell, rents or offers to rent, or traffics
in any copy or phonorecord fixed as described in paragraph
(1), regardless of whether the fixations occurred in the United
States.
Although some unauthorized recordings or trade in unauthorized recordings
might be prosecuted as infringement of the underlying musical composition
performed in the recording, § 2319A specifically targets the making and
distribution of these so-called “bootlegged” musical recordings.
Each of § 2319A’s three subsections protects a different right of the
performing artist. Paragraph (a)(1) prohibits fixing the sounds or images of a
live musical performance in a tangible medium. See 17 U.S.C. § 101 (defining
fixation). But see United States v. Moghadam, 175 F.3d 1269, 1274 (11th Cir.
1999) (declining to decide whether a live performance is fixed at the time of
performance). Paragraph (a)(2) prohibits transmitting the sounds or images
of a live musical performance to the public. This subsection was intended
to apply to the unauthorized transmission of bootleg performances through
radio or television, and not to the unauthorized reproduction of previously
recorded but unreleased performances, i.e., studio out-takes. The latter should
be considered for prosecution as criminal copyright infringement or, if labeled,
trafficking in counterfeit labels, documentation, or packaging. See Chapter
VI of this Manual. Paragraph (a)(3) prohibits distributing to the public or
trafficking in any fixed recording of a live musical performance.
Under each subsection, the government must also prove that the defendant
acted: (1) without authorization from the performer involved; (2) knowingly;
and (3) for purposes of commercial advantage or private financial gain. See
Section B.4. of this Chapter for a detailed discussion of the commercial
motivation element.
Section 2319A is a five-year felony (ten years for repeat offenders) with a
fine of $250,000 or twice the monetary gain or loss, see 18 U.S.C. §§ 2319A(a),
3571(b)(3),(d), and is sentenced under the same guideline as are copyright
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crimes, U.S.S.G. § 2B5.3. The statute provides for mandatory forfeiture and
destruction of all infringing items upon a defendant’s conviction. See 18 U.S.C.
§ 2319A(b),(c). Further, a violation of § 2319A is listed in 18 U.S.C. § 1961(1)
(B) as a RICO predicate. It was inserted into RICO by the Anticounterfeiting
Consumer Protection Act, Pub. L. No. 104-153 § 3, 110 Stat. 1386 (1996).
The constitutionality of 18 U.S.C. § 2319A (and the related civil statute,
17 U.S.C. § 1101) has been challenged several times on the grounds that in the
area of copyright Congress may regulate only “writings” and only for “limited
times,” see U.S. Const., art. I, § 8, cl. 8, and that § 2319A (which has no
time limit and applies to live performances) exceeds those limits. Although
these challenges have occasionally prevailed at the district court level, the
constitutionality of the statute has ultimately been upheld upon rehearing or
by the Courts of Appeals. See United States v. Martignon, 492 F.3d 140 (2d
Cir. 2007); Moghadam, 175 F.3d at 1274-77; Kiss Catalog, Ltd. v. Passport Int’l
Prods., Inc., 405 F. Supp. 2d 1169 (C.D. Cal. 2005).
Many states also criminalize trafficking in bootleg recordings.
•

Unauthorized recording of motion pictures in a motion picture
exhibition facility (“Camcording”), 18 U.S.C. § 2319B

The Family Entertainment and Copyright Act of 2005, Pub. L. No. 1099, 119 Stat. 218 (enacted April 27, 2005), created a criminal offense that
targets “camcording,” the use of camcorders and similar devices to record
movies playing in public movie theaters. “Camcorded” copies of movies are a
significant source of pirated movies, and sales of camcorded copies of movies
can be especially harmful to copyright owners, because they typically are
created and distributed when the movie is available only in theaters and not
on DVD or other formats. H.R. Rep. No. 109-33(I) (2005), reprinted in 2005
U.S.C.C.A.N. 220. In addition to the federal camcording offense in § 2319B,
most states and the District of Columbia also provide criminal penalties for
unauthorized camcording.
The elements of an offense under 18 U.S.C. § 2319B are that the defendant
(1) knowingly, and (2) without the authorization of the copyright owner, (3)
used or attempted to use an audiovisual recording device, (4) to transmit or
make a copy of a motion picture or other audiovisual work protected under
Title 17, (5) from a performance of such work in a motion picture exhibition
facility. 18 U.S.C. § 2319B(a). The maximum punishment for the offense is
three years (six years for repeat offenders). Id.
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Section 2319B’s mens rea requirement is lower than the “willfulness”
requirement for criminal copyright offenses: a § 2319B defendant need only
act “knowingly.” Additionally, it is not necessary to show infringement of a
copyright. Rather, the government need only show that the defendant was
transmitting or copying (or attempting to transmit or copy) a copyrighted
motion picture without the copyright owner’s permission. Although the defenses
to infringement set forth in Title 17 would not apply to a prosecution under
18 U.S.C. § 2319B, the statute’s legislative history indicates that Congress
intended prosecutors to avoid prosecuting cases that would be deemed “fair
use” under copyright law. See H.R. Rep. No. 109-33(I), at 4.
An “audiovisual recording device” is defined as a “digital or analog
photographic or video camera, or any other technology or device capable of
enabling the recording or transmission of a copyrighted motion picture or
other audiovisual work, or any part thereof, regardless of whether audiovisual
recording is the sole or primary purposes of the device.” 18 U.S.C. § 2319B(g)
(2). This would appear to apply to camera-phones, PDA phones, and digital
cameras (especially those capable of recording video). Congress, however,
intended that the offense should not cover incidental uses of these devices
in a theater, even though such uses could violate other statutes (such as the
copyright laws). See H.R. Rep. No. 109-33(I), at 2-3.
The offense applies only to camcording in a “motion picture exhibition
facility,” which is defined by reference to that same term in 17 U.S.C. § 101:
“a movie theater, screening room, or other venue that is being used primarily
for the exhibition of a copyrighted motion picture, if such exhibition is open
to the public or is made to an assembled group of viewers outside of a normal
circle of a family and its social acquaintances.” The term includes commercial
movie theaters and may also apply to generally non-public or quasi-public
spaces such as a university auditorium, but only when such a venue is being
used as a “public” exhibition facility at the time of the offense. See H.R. Rep.
No. 109-33(I), at 3, reprinted in 2005 U.S.C.C.A.N. 222 (stating that “open
to the public” is intended to refer to the particular exhibition rather than the
venue generally).
•

Trafficking in counterfeit and illicit labels, and counterfeit
documentation and packaging, 18 U.S.C. § 2318

This is covered in Chapter VI of this Manual.

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•

Trafficking in goods and services with counterfeit trademarks,
service marks, and certification marks, 18 U.S.C. § 2320

See Chapter III of this Manual.
•

Digital Millennium Copyright Act (DMCA), 17 U.S.C. §§ 12011204

The DMCA provides criminal penalties for dismantling the electronic locks
that are intended to prevent people from accessing or copying copyrighted
works without permission, for trafficking in “electronic lockpicks,” and for
falsifying or removing copyright management information. See Chapter V of
this Manual.
•

Unauthorized reception of cable and
47 U.S.C. §§ 553, 605 and 18 U.S.C. § 2511

satellite

•

Economic Espionage Act, 18 U.S.C. §§ 1831-1839

service,

For stealing trade secrets, whether copyrighted or not, see Chapter IV of
this Manual.
•

Mail and wire fraud, 18 U.S.C. §§ 1341, 1343, 1346

Although fraud schemes can involve copyrighted works, prosecutors
should be wary of charging mail or wire fraud as a substitute for a criminal
copyright charge in the absence of evidence of any misrepresentation or
scheme to defraud. In one copyright case, in which a wire fraud charge was
brought because the facts were insufficient to support a criminal copyright
charge, no misrepresentation was alleged, and the district court dismissed the
charge. See United States v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994). The
judge in LaMacchia reasoned that the bundle of rights conferred by copyright
is unique and carefully defined, precluding prosecution under the general
wire fraud statute, at least when there is no fraudulent conduct on the part
of the defendant. Id. at 544-45. The court in LaMacchia relied heavily on the
Supreme Court’s decision in Dowling v. United States, 473 U.S. 207 (1985).
In Dowling, the Court overturned the defendant’s conviction for interstate
transportation of stolen property under 18 U.S.C. § 2314 because it found
Congress’ actions to be preemptive. See Dowling, 473 U.S. at 207; see also 4
Nimmer on Copyright § 15.05[A] at 15-34 (1999) (“Dowling’s lesson is that
Congress has finely calibrated the reach of criminal copyright liability, and
therefore, absent clear indication of Congressional intent, the criminal laws of
the United States do not reach copyright-related conduct.”).
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85

While LaMacchia suggests that courts are unlikely to be receptive to a wire
or mail fraud charge brought as a substitute for a criminal copyright charge in
a case where some element of the criminal copyright charges is missing, wire
or mail fraud charges may still be viable and appropriate in infringement cases
that involve actual misrepresentations or schemes to defraud. Cf. United States
v. Manzer, 69 F.3d 222, 226 (8th Cir. 1995) (holding that sale to a third party
of illegal cable television descrambling devices violated federal fraud statutes);
United States v. Coyle, 943 F.2d 424, 427 (4th Cir. 1991) (holding sale of cable
television descramblers to be a scheme to defraud “because it wronged the
cable companies in their ‘property rights by dishonest methods or schemes’”)
(quoting United States v. McNally, 483 U.S. 350, 358 (1987)). Nevertheless, in
the absence of strong evidence of misrepresentation, prosecutors should avoid
a wire or mail fraud charge if an infringement crime can be proved.
For a more detailed discussion of 18 U.S.C. §§ 1341 and 1343, refer to
USAM Chapter 9-43.000. The Criminal Division’s Fraud Section at (202)
514-7023 can provide further information and guidance.
•

Interstate transportation and receipt of stolen property or goods,
18 U.S.C. §§ 2314-2315

The Interstate Transportation of Stolen Property Act (“ITSP”) punishes
“[w]hoever transports, transmits, or transfers in interstate or foreign commerce
any goods, wares, merchandise, securities or money, of the value of $5,000 or
more, knowing the same to have been stolen, converted or taken by fraud,” 18
U.S.C. § 2314, and “[w]hoever receives, possesses, conceals, stores, barters,
sells, or disposes” stolen property that has crossed a state or federal boundary,
18 U.S.C. § 2315.
Although ITSP can be used under certain circumstances to prosecute
theft of proprietary information or other types of intellectual property, the
Supreme Court has rejected the use of the ITSP statute to prosecute copyright
infringement cases, at least when the infringement does not involve the actual
theft of a tangible good. Dowling v. United States, 473 U.S. 207 (1985). In
Dowling, the Court reversed a conviction for the interstate transportation
of infringing copies of Elvis Presley records, holding that Congress did not
intend § 2314 to criminalize copyright infringement. The Court reasoned that
a copyright infringer neither assumed physical control over the copyright nor
wholly deprived the owner of its use. The statute “seems clearly to contemplate
a physical identity between the items unlawfully obtained and those eventually
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transported, and hence [requires] some prior physical taking of the subject
goods.” Id. at 216.
Despite Dowling, an ITSP charge may be appropriate for acts of infringement
that involve the actual transportation of tangible objects across state lines. For
more on these issues, see Section F. of Chapter IV of this Manual.
•

Racketeer Influenced and Corrupt Organizations Act (RICO), 18
U.S.C. §§ 1961-1968

The criminal copyright and bootleg recordings of live music performances
offenses are RICO predicates. See 18 U.S.C. § 1961(1)(B). RICO charges
must be approved by the Department’s Organized Crime and Gang Section,
which can be reached at (202) 514-3594.
•

Money laundering, 18 U.S.C. § 1956

Criminal copyright infringement is a specified unlawful activity for
purposes of the money laundering statute. See 18 U.S.C. § 1956(c)(7)(D).

II. Criminal Copyright Infringement

87

88

Prosecuting Intellectual Property Crimes

III.
Trafficking In
Counterfeit Trademarks,
Service Marks, and
Certification Marks—
18 U.S.C. § 2320
A.

Introduction
1. Overview

Trademarks and service marks are part of the fabric of American society.
They are on our clothes, our cars, and nearly everything else we buy; they are
advertised on the street, in magazines, on television and websites, and especially
in stores. They are protected not only by civil law, but also by the criminal
counterfeit marks statute first enacted in 1984, 18 U.S.C. § 2320.
A trademark is “any word, name, symbol, or device, or any combination
thereof ... used by a person ... to identify and distinguish his or her goods ...
from those manufactured or sold by others and to indicate the source of the
goods.” 15 U.S.C. § 1127. A service mark, by contrast, identifies the source of
services rendered or offered, such as athletic events, television shows, restaurant
services, telecommunications services, or retail business services, rather than
goods. Id. Examples of well-known trademarks include Kodak®, Apple®,
Microsoft®, Coca-Cola®, GE®, Life-Savers®, USA Today®, KLEENEX®, the
color pink for Owens Corning fiberglass, and the NBC chime. Well-known
service marks include Merry Maids®, Greyhound®, Wal-Mart®, Taco Bell®,
Burger King®, and McDonald’s®.
Two other types of marks are protected by 18 U.S.C. § 2320: certification
and collective marks. A certification mark is used to certify characteristics
of goods or services, including regional or other origin, material, mode of
manufacture, quality, and accuracy. Certification marks are also used to certify
that the work or labor on the goods or services was performed by members of
89

a union or other organization. 15 U.S.C. § 1127. Examples of certification
marks include Underwriters Laboratories’ UL® mark, which certifies the safety
standards of electrical cable equipment, and the Woolmark® symbol, which
certifies that certain laundry products can wash and dry wool and wool-blend
products without damage. These marks indicate that authorized persons will
manufacture the products in accordance with the mark-holder’s processes. A
collective mark is a trademark or service mark used by an association, union,
or other group either to identify the group’s products or services, or to signify
membership in the group. Id. PGA®, Realtor®, and AFL-CIO® are examples of
collective marks.
As is discussed in more detail below, the law protects marks from
infringement because they are important to businesses and for consumer
protection. Americans rely on the brands these marks represent when deciding
which goods and services to purchase and use. This gives companies a strong
incentive to control the quality of their goods and services and to invest heavily
in their brands. One who infringes a mark often misleads consumers, diverts
sales from the mark’s owner, and misrepresents to the public the quality of
the marked products and services. Criminal prosecution is appropriate for the
most egregious infringers.
This Chapter first discusses the functions protected by trademarks, service
marks, and certification marks. It then discusses the criminal counterfeiting
statute and the elements of the crime, as well as common defenses, issues
unique to this crime, and related statutory penalties. Sample indictments and
jury instructions are provided in Appendix C.
The criminal counterfeit marks statute, 18 U.S.C. § 2320, and its associated
statutes, have undergone several significant amendments since 2005. The Stop
Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, § 1, 120
Stat. 285, 285-88 (2006) and the Protecting American Goods and Services
Act of 2005, Pub. L. No. 109-181, § 2, 120 Stat. 285, 288 (2006) (the “2006
amendments”), effective March 16, 2006, expanded and clarified the definition
of “trafficking,” and added language criminalizing trafficking in labels and
packaging bearing counterfeit marks, even where those labels are unattached
to actual goods.
The Prioritizing Resources and Organization for Intellectual Property
(PRO-IP) Act, Pub. L. No. 110-403, 122 Stat. 4256, 4261-63 (2008), effective
October 13, 2008, further amended § 2320 and associated statutes addressing
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Prosecuting Intellectual Property Crimes

counterfeiting, by (i) enhancing penalties for knowingly or recklessly causing
or attempting to cause serious bodily injury or death, 18 U.S.C. § 2320(a)(2)
(A) and (B) [now § 2320(b)(2)(A) and (B)]; (ii) prohibiting transshipment or
exportation of goods or services, the trafficking of which was already prohibited
by 18 U.S.C. § 2320(h) [now § 2320(i)]; and (iii) harmonizing forfeiture and
restitution provisions under 18 U.S.C. §§ 2323 and 2320(b) [now § 2320(c)].
Most recently, the National Defense Authorization Act (NDAA) for Fiscal
Year 2012, Pub. L. No. 112-81, 125 Stat. 1298 (2011), H.R. 1540, S. 1867,
enacted December 31, 2011, and the Food and Drug Administration Safety
and Innovation Act (FDASIA), Pub. L. No. 112-144, 126 Stat. 993, S. 3197,
enacted July 9, 2012, included a number of substantial amendments to § 2320.
For example, the NDAA, in § 818, amended § 2320 to include new, enhanced
penalties for certain offenses involving “counterfeit military goods,” a new
category also defined in the NDAA. Section 2320 also now provides an express
conspiracy provision, so that conspiracies to traffic in counterfeit goods may
be prosecuted under § 2320 alone, rather than in conjunction with 18 U.S.C.
§ 371. In addition to these substantive changes to § 2320, the NDAA also
restructured the offense language in § 2320(a). The FDASIA amended § 2320
to create a new offense for “trafficking in counterfeit drugs,” and included new,
enhanced penalties for this offense. See FDASIA § 717. Prosecutors should
consult the text of § 2320 carefully to ensure that they are applying the law in
effect at the time of the offense. Particularly in light of the recent restructuring
of § 2320(a), prosecutors should be mindful that previously-used charging
instruments, jury instructions, and other documents drafted prior to 2012
may use slightly different statutory language or numbering than is currently
applicable. For example, the definition of “counterfeit mark” previously found
in § 2320(e)(1) is now found in § 2320(f )(1).
In addition to this Chapter, prosecutors may refer to the leading treatise
on trademark law, J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition (4th ed. 2012), as well as other helpful law review articles and
treatises such as Ronald D. Coenen Jr. et. al., Intellectual Property Crimes, 48
Am. Crim. L. Rev. 849 (2011); Louis Altman & Malla Pollack, Callmann on
Unfair Competition, Trademarks and Monopolies, 4 Callmann on Unfair Comp.,
T. & Mono. § 22:33 (4th ed. 2012); and David J. Goldstone & Peter J. Toren,
The Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1 (1998).
Although § 2320 criminalizes the infringement of trademarks, service
marks, and certification marks, for ease of discussion this Manual often refers
III.Trafficking In Counterfeit Marks

91

primarily to trademarks and sales of goods. The legal analysis should, however,
apply equally to service and certification marks as well.
2. Why Criminal Law Protects Trademarks, Service Marks, and
Certification Marks
Trademarks and service marks serve at least four functions:
1. They identify a particular seller’s goods or services and distinguish them
from those sold by others.
2. They signify that all goods or services bearing the mark come from or
are controlled by a single source.
3. They signify that all goods or services bearing the same mark are of an
equal level of quality.
4. They serve as a primary method to advertise and sell goods and services.
See 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition
§ 3:2 (4th ed. 2012). A trademark or service mark also serves as an important
“objective symbol of the good will that a business has built up. Without the
identification function performed by trademarks, buyers would have no way
of returning to buy products that they have used and liked.” Id. Certification
marks are intended to “certify regional or other origin, material, mode of
manufacture, quality, accuracy or other characteristics of such person’s goods
or services.” 15 U.S.C. § 1127.
Because “penalties under [the civil Lanham] Act have been too small, and
too infrequently imposed, to deter counterfeiting significantly,” much of the
conduct that formerly had been subject only to civil penalties was criminalized
through the enactment of the Trademark Counterfeiting Act of 1984, Pub. L.
No. 98-473, 98 Stat. 2178 (1984), (codified at 18 U.S.C. § 2320). See S. Rep.
No. 98-526, at 5 (1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3631.
The criminalization of trademark counterfeiting serves at least four
important purposes:
a. Protecting a mark-holder’s intellectual property from theft or dilution
Stealing a company’s name or brand name is a type of corporate identity
theft. See H.R. Rep. No. 109-68, at 8 n.2 (2005) (“Congress was concerned ...
that counterfeiters can earn enormous profits by capitalizing on the reputations,
development costs, and advertising efforts of honest manufacturers at little
expense to themselves.”) (alterations in original and internal quotation marks
omitted) (legislative history to Stop Counterfeiting in Manufactured Goods
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Act, Pub. L. No. 109-181, § 1, 120 Stat. 285 (2006)) (citing United States v.
Hon, 904 F.2d 803, 806 (2d Cir. 1990) and S. Rep. No. 98-526, at 4-5 (1984),
reprinted in 1984 U.S.C.C.A.N. 3627, 3630-31). A counterfeiter should no
more be able to steal a company’s good name (and the profits associated with
its name) than the company’s money or other assets. Diane Kiesel, Battling the
Boom in Bogus Goods, 71-MAR A.B.A.J. 60 (1985). Also, by selling inferior
products, the counterfeiter may devalue a mark-holder’s good name even while
profiting from it. Id. at 61.
b. Protecting consumers from fraud
When consumers decide what goods to buy, they should be able to rely on
individual goods’ trademarks and the quality those marks purport to represent.
See H.R. Rep. No. 109-68, at 8 n.2 (“Congress was concerned not only that
trademark counterfeiting defrauds purchasers, who pay for brand-name quality
and take home only a fake...”) (alterations in original and internal quotation
marks omitted) (citing Hon, 904 F.2d at 806 and S. Rep. No. 98-526, at 4-5);
Note, Badwill, 116 Harv. L. Rev. 1845 (2003). Counterfeit marks can mislead
consumers. They give the ring of authenticity to goods of lower quality. They
can even mask serious health or safety risks to consumers, as in the cases of
counterfeit food products, batteries, prescription drugs, or automotive parts.
S. Rep. No. 98-526, at 4-5. Trademark counterfeiting can also be difficult
to regulate civilly. With a large number of victims across a potentially large
geographic region—especially in the case of goods offered online—and small
losses per victim, a large-scale counterfeiter can often evade civil sanctions.
c. Protecting the safety of non-purchasing users
Sales of counterfeit products can hurt not only the trademark holder and
the initial purchaser, but also third parties who use the goods or services after
the initial purchase. For example, airline passengers are victims of counterfeit
airplane parts, coronary patients are victims of counterfeit heart pumps, and
children are victims of counterfeit infant formula, even though in each case
the counterfeit goods were purchased for those consumers’ benefit by another
person. These are some of the types of situations that Congress sought to
eradicate by criminalizing trademark infringement. See H.R. Rep. No. 104556, at 3 (1996), reprinted in 1996 U.S.C.C.A.N. 1074, 1076; S. Rep. No.
98-526, at 4-5.

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d. Enforcing market rules
Just as counterfeiting money and forging financial instruments undermine
fundamental rules of the marketplace, counterfeiting trademarks weakens
modern commercial systems. David J. Goldstone & Peter J. Toren, The
Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1, 17-19 (1998).

B.

Elements
1. The Trademark Counterfeiting Crime in General
The Trademark Counterfeiting Act, 18 U.S.C. § 2320(a), states:
(a) Offenses.— Whoever intentionally—
(1) traffics in goods or services and knowingly uses a
counterfeit mark on or in connection with such goods or
services,
(2) traffics in labels, patches, stickers, wrappers, badges,
emblems, medallions, charms, boxes, containers, cans,
cases, hangtags, documentation, or packaging of any type
or nature, knowing that a counterfeit mark has been applied
thereto, the use of which is likely to cause confusion, to
cause mistake, or to deceive,
(3) traffics in goods or services knowing that such good
or service is a counterfeit military good or service the
use, malfunction, or failure of which is likely to cause
serious bodily injury or death, the disclosure of classified
information, impairment of combat operations, or other
significant harm to a combat operation, a member of the
Armed Forces, or to national security, or
(4) traffics in a counterfeit drug,
or attempts or conspires to violate any of paragraphs (1)
through (4) shall be punished as provided in subsection (b).

In contrast to criminal copyright thresholds, selling just one counterfeit
item can be a felony. United States v. Foote, 413 F.3d 1240, 1246 (10th Cir.
2005). There is no misdemeanor provision.

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Thus, to establish a criminal offense under 18 U.S.C. § 2320(a)(1)-(3), the
government must prove the following elements:
1. The defendant intentionally trafficked or attempted or conspired to traffic
in goods or services (or labels, documentation or packaging for goods
or services); and
2. The defendant knowingly used a counterfeit mark on or in connection
with those goods or services, or a counterfeit mark was applied to
labels, documentation, or packaging for those goods or services.
The elements above apply to all offenses under § 2320, whether under
subsection (1), (2), or (3). To prove an offense under the military counterfeits
provision, § 2320(a)(3), the government must also prove the following two
elements:
3. The good or service bearing a counterfeit mark is a “counterfeit military
good or service,” meaning that the good or service is:
a. falsely identified or labeled as meeting military specifications, or
b. intended for use in a military or national security application; and
4. The use, malfunction, or failure of the good or service is likely to cause
one or more of the following:
a. serious bodily injury or death,
b. the disclosure of classified information,
c. impairment of combat operations, or
d. other significant harm to a combat operation, a member of the
Armed Forces, or to national security.
With respect to the counterfeit drug provision, § 2320(a)(4), this provision
makes it an offense to intentionally traffic or attempt or conspire to traffic in a
“counterfeit drug”; “counterfeit drug” is defined in § 2320(f )(6) as a drug “that
uses a counterfeit mark on or in connection with the drug.” Congress, however,
inadvertently did not include the requirement that the government must prove
that the defendant knowingly used a counterfeit mark on or in connection
with the drug. As of this writing, Congress has not amended this provision to
correct the omission of this requirement. If prosecutors seek to bring a case
under § 2320(a)(4), it would be prudent for prosecutors to prove that the
defendant knowingly used a counterfeit mark on or in connection with the
drug, just as they would prove the mens rea for § 2320(a)(1)–(3). This approach
is consistent with the legislative intent. Alternatively, prosecutors can continue
to use § 2320(a)(1) to charge cases involving the knowing use of a counterfeit
mark on drugs as such drugs still constitute “goods.” Prosecutors can contact
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CCIPS at (202) 514-1026 to obtain the latest guidance with respect to the
counterfeit drug provision.
In addition to the elements of the offense, the government must also show
in all cases that the counterfeit mark meets the definition of a counterfeit mark
as set forth in § 2320(f ). To meet the definition of a counterfeit mark, the
government must show that:
1. The counterfeit mark was not genuine or authentic;
2. The counterfeit mark was identical to or substantially indistinguishable
from a genuine mark owned by another;
3. The genuine mark was registered on the principal register in the United
States Patent and Trademark Office;
4. The genuine mark had been in use by the mark-holder or its licensee;
5. The counterfeit mark was used “on or in connection with” the
defendant’s goods or services (or in the case of labels and packaging, the
counterfeit mark was “applied to or used in connection with” the goods
or services or was “applied to or consist[ed] of ” labels, documentation,
or packaging “of any type or nature”);
6. The counterfeit mark was used “in connection with” the type of goods
or services for which the protected mark was registered, (or in the case
of labels and packaging, the counterfeit labels, documentation, or
packaging were “designed, marketed, or otherwise intended to be used
on or in connection with the goods or services for which the mark
[was] registered”); and
7. The counterfeit mark was used in a manner “likely to cause confusion, to
cause mistake, or to deceive.”
These elements and definition are discussed in detail below.
2. Relevance of Civil Trademark Law in Criminal
Counterfeiting Cases
When Congress drafted § 2320, it relied on the “concepts and definitions
of the Lanham Act,” the civil trademark statute codified at 15 U.S.C. §§ 10511127. See H.R. Rep. No. 98-997, at 4-5 (1984). The Lanham Act’s defenses and
limitations on remedies are specifically incorporated into § 2320, see 18 U.S.C.
§ 2320(d), (f )(3), and are discussed in Section C.4. of this Chapter. Moreover,
Congress repeatedly indicated that the Lanham Act was the background against
which § 2320 should be interpreted. See, e.g., Joint Statement on Trademark
Counterfeiting Legislation, 130 Cong. Rec. 31,675 (1984) (hereinafter “Joint
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Statement”) (“No conduct will be criminalized by this act that does not
constitute trademark infringement under the Lanham Act.”).
Given this legislative history, courts deciding criminal cases under § 2320
have often turned to civil opinions decided under the Lanham Act. For example,
the Ninth Circuit affirmed a defendant’s § 2320 conviction by relying not
only on the criminal statute’s legislative history, but also on two civil Lanham
Act cases. The court noted that the “definition of the term ‘counterfeit mark’
in the Lanham Act is nearly identical to the definition [of counterfeit mark]
in Section 2320, suggesting that Congress intended to criminalize all of the
conduct for which an individual may be civilly liable.” United States v. Petrosian,
126 F.3d 1232, 1234 (9th Cir. 1997); see also 15 U.S.C. §§ 1116(d) (defining
“counterfeit mark” in civil actions), 1127 (defining “counterfeit”). Similarly, the
Eleventh Circuit held that the “likely to cause confusion, mistake or deceive”
test within the definition of counterfeit mark at 18 U.S.C. § 2320(f )(1)(A)
(iii) extends beyond direct purchasers to encompass the purchasing public and
potential purchasers based on the “identical language” in the Lanham Act and
the legislative history. United States v. Torkington, 812 F.2d 1347, 1352 (11th
Cir. 1987) (“Congress ... manifested its intent that [§ 2320] be given the same
interpretation as is given the identical language in [§] 1114(1) of the Lanham
Act”).
Despite the civil and criminal laws’ many similarities, some courts have
held that their differences sometimes merit distinction. See United States v.
Hanafy, 302 F.3d 485, 488 (5th Cir. 2002) (holding that Lanham Act cases
“should not be used as authoritative in interpreting a criminal statute”); United
States v. Giles, 213 F.3d 1247, 1249-50 (10th Cir. 2000) (declining to follow a
civil case in part because § 2320, as a criminal statute, must be construed more
narrowly); Torkington, 812 F.2d at 1350 (noting that § 2320 is “narrower in
scope” than the Lanham Act).
3. Intentionally Trafficked in Goods or Services (or Labels,
Documentation, or Packaging for Goods or Services)
Section 2320(a) requires the government to prove that the defendant
“intentionally” trafficked in goods or services or in “labels, patches, stickers,
wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases,
hangtags, documentation, or packaging of any type or nature,” or attempted or
conspired to do so. 18 U.S.C. § 2320(a)(1), (2).

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a. Intentionally
The term “intentionally” modifies “traffics.” See Stop Counterfeiting in
Manufactured Goods Act, Pub. L. No. 109-181, § 1, 120 Stat. 285, 285-87
(2006); United States v. Baker, 807 F.2d 427, 429 (5th Cir. 1986) (quoting
legislative history’s breakdown of § 2320’s two mens rea elements). It means
“that the defendant trafficked in the goods or services in question deliberately,
or ‘on purpose.’” See Joint Statement, 130 Cong. Rec. 31,674 (1984).
As a general intent crime, the government need not prove that the defendant
specifically intended to violate 18 U.S.C. § 2320 or even that he knew his
conduct was illegal. Baker, 807 F.2d at 427-30; United States v. Gantos, 817
F.2d 41, 42-43 (8th Cir. 1987) (affirming district court’s refusal to instruct jury
that § 2320 required proof that defendant knew that his act violated the law).
b. Trafficked
i. General Definition
“Traffic” is broadly defined in § 2320(f )(5) to mean “to transport, transfer,
or otherwise dispose of, to another, for purposes of commercial advantage or
private financial gain, or to make, import, export, obtain control of, or possess,
with intent to so transport, transfer, or otherwise dispose of.” The current
definition resolves some difficulties that arose from earlier definitions used in
the statute, which turned on the meaning of “consideration.”
Prior to March 16, 2006, “traffic” was defined somewhat more narrowly,
in what was then subsection (e)(2) of 18 U.S.C. § 2320 to mean “transport,
transfer, or otherwise dispose of, to another, as consideration for anything of
value, or make or obtain control of with intent so to transport, transfer, or
dispose of.” That definition was intended to be broad, covering all aspects of
commercial activity from initial manufacture to distribution and sale, but it
was not intended to cover purchases for personal use. See Joint Statement, 130
Cong. Rec. 31,675 (1984); S. Rep. No. 98-526 (1984), reprinted in 1984
U.S.C.C.A.N. 3627; David J. Goldstone & Peter J. Toren, The Criminalization
of Trademark Counterfeiting, 31 Conn. L. Rev. 1 (1998). A defendant who did
not personally “transport[], transfer[], or otherwise dispose[]” of the goods but
who aided and abetted a co-conspirator who did traffic could be convicted as
an aider-and-abettor. See United States v. Guerra, 293 F.3d 1279, 1287 (11th
Cir. 2002) (affirming § 2320 conspiracy and aiding-and-abetting convictions

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for defendants who made labels that a co-conspirator attached to fake Cuban
cigars he sold).
Yet the pre-2006 definition arguably covered too narrow a swath of
commercially-motivated conduct, and it generally did not explain how to deal
with cases in which the defendant was caught possessing counterfeits with the
intent to traffic in them. See Sections B.3.b.ii.-iii. of this Chapter.
These problems were fixed by the Protecting American Goods and Services
Act of 2005, enacted March 16, 2006. The statute modified the definition
of the term “traffic” to (1) clarify that it includes trafficking committed for
commercial purpose or financial gain (which includes the receipt or expected
receipt of anything of value); (2) applies to importing or exporting counterfeit
goods; and (3) includes possession with intent to transport, transfer or otherwise
dispose of. See Pub. L. No. 109-181, § 2, 120 Stat. 285, 288 (2006) (amending
the former 18 U.S.C. § 2320(e)(2), (3) (now numbered 2320(f )(5), (f )(2),
respectively). These issues are discussed below.
ii. Consideration vs. Commercial Advantage
and Private Financial Gain
Under the pre-2006 definition of “traffic,” the thing “of value” that a
defendant had to receive as consideration for the counterfeit goods did not
need to be a financial payment, but rather could be anything that had value.
See United States v. Koehler, 24 F.3d 867, 870-71 (6th Cir. 1994) (affirming
§ 2320 conviction based on acceptance of air conditioner compressors in lieu
of financial payment). That rule survived the 2006 amendments, in which
“consideration” was replaced with “for purposes of commercial advantage or
private financial gain,” § 2320(e)(2) (as amended), and “financial gain” was
defined as including “the receipt, or expected receipt, of anything of value,”
§ 2320(e)(3) (as amended) (emphasis added) (now numbered 2320(f )(5), (f )
(2), respectively).
The “consideration” requirement may have been too narrow to capture
some types of commercially-motivated counterfeiting conduct. For example,
at least one court held that the term “consideration” must be interpreted in
the contractual sense as the product of a bargained-for exchange between
parties. See United States v. Habegger, 370 F.3d 441, 444-45 (4th Cir. 2004).
In Habegger, the Fourth Circuit held that a free sample of counterfeit goods
sent to a potential customer did not constitute “trafficking” under what was
then § 2320(e)(2) (now § 2320(f )(2)), even if the samples had been sent to
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99

maintain the customer’s good will, because there had been no agreement to
purchase goods. Id. at 445. The court might have decided differently, however,
had there been “more than a mere hope on the part of the sender that the
recipient [would] purchase goods in the future,” such as if the recipient had
“promised to pay for the socks, to buy additional socks if he found the samples
acceptable, or even to examine the socks and consider purchasing more.” Id.
To avoid problems like this, Congress replaced “consideration” with “for
purposes of commercial advantage or financial gain,” a phrase which has a longstanding meaning within the copyright and criminal codes. It covers a wider
variety of profit-related infringement, regardless of whether the defendant
infringed for a direct quid pro quo or actually made a profit. For a detailed
discussion of how to apply the commercial advantage or financial gain element,
see Section B.4. of Chapter II of this Manual.
The post-2006 definition of “traffic” in § 2320 is sufficiently broad to
cover virtually all types of commercial transactions, but does not extend to a
consumer’s acquisition of a counterfeit item solely for personal use. This was
also true under the prior version of “traffic.” See Joint Statement, 130 Cong.
Rec. 31,675 (1984).
iii. Making and Obtaining Counterfeits vs. Possession with Intent to
Traffic
At first glance, possession of contraband with intent to traffic—which the
old definition did not explicitly cover—appears coextensive with making or
obtaining control of contraband with intent to traffic—both of which the old
and new definitions explicitly included. See 18 U.S.C. § 2320(f )(5); United
States v. DeFreitas, 92 F. Supp. 2d 272, 277 (S.D.N.Y. 2000) (holding that
purchasing counterfeit items in China for transportation to and sale in the
United States constituted an illegal act of “obtaining control” for purposes of
§ 2320).
Yet there is a subtle—but important—distinction between “obtaining
control” with intent to traffic and “possession” with intent to traffic. Consider a
warehouse full of counterfeits, with no records indicating when the counterfeits
were made, obtained, or transported. Under the old definition of trafficking,
the defendant might argue that although the government could show that
he possessed counterfeits in commercial quantities, it could not prove when
he made or obtained control of them—the old definition’s operative verbs.
In the same vein, the defendant might argue that without records to prove
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when the defendant made or obtained control of the counterfeits, a fortiori the
government could not prove that these events occurred within the statute of
limitations. If, however, the government need only prove that the defendant
possessed the contraband with the intent to traffic in it, then the government
can establish that that action occurred on the date it found the warehouse full
of counterfeits; it need not prove when the defendant acquired or produced the
contraband. Thus, Congress amended the definition of trafficking explicitly to
include possession with intent to traffic.
iv. Importing and Exporting Related to Transporting
Congress added importing and exporting to the new definition of trafficking
in 2006 to make clear that both acts violate § 2320. The pre-2006 definition
of “traffic” covered both importing and exporting counterfeits: importing and
exporting are forms of transporting goods, and the old definition explicitly
covered transportation. See 18 U.S.C. § 2320(e)(2) (2000) (“[T]he term ‘traffic’
means to transport, transfer, or otherwise dispose of, to another ...”) (emphasis
added) (pre-2006 amendments); DeFreitas, 92 F. Supp. 2d at 276-77 (holding
that importing counterfeit items from China into the United States for sale
constituted trafficking under § 2320). The 2006 amendments make it even
clearer that the acts of importing and exporting counterfeits violate § 2320.
c. Goods and Services (and Labels, Patches, Stickers, Wrappers, Badges,
Emblems, Medallions, Charms, Boxes, Containers, Cans, Cases,
Hangtags, Documentation, or Packaging of Any Type or Nature)
Before the 2006 amendments, § 2320 only criminalized trafficking in
counterfeit “goods” or “services” (which continue to be criminalized under
§ 2320(a)(1) and (a)(3)). In the 2006 amendments, Congress expanded § 2320
to criminalize trafficking in labeling and packaging components designed to be
applied to accompany goods or services.
Neither § 2320 nor the Lanham Act define the terms “goods or services.”
Section 2320’s legislative history, however, provides some guidance regarding
the meaning of “goods.” In the legislative history, Congress’s focus was on the
damage caused by various types of counterfeit goods such as drugs, automobile
parts, cosmetics, fertilizers, computer parts, and medical devices. H.R. Rep.
No. 98-997, at 5 (1984). With regard to “services,” however, the legislative
histories for § 2320 and the Lanham Act are silent. See In re Advertising &
Marketing Dev., Inc., 821 F.2d 614, 618 (Fed. Cir. 1987) (discussing Lanham
Act’s legislative history). Although courts have not defined “services” under
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§ 2320, in Lanham Act cases, courts have defined the term broadly to include
“the performance of labor for the benefit of another.” In re Canadian Pac. Ltd.,
754 F.2d 992, 994 (Fed. Cir. 1985) (emphasis omitted); Morningside Group
Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 137-38 (2d Cir.
1999).
The difficulty with punishing defendants for using counterfeit marks only in
connection with goods and services for which the genuine mark was registered
was that it created a potential loophole for trafficking in labels, documentation,
and packaging with counterfeit marks. Labels, documentation, and packaging
that bore counterfeit trademarks but which were unattached to other goods or
services ran the possibility of not being considered “goods” under § 2320 if the
mark-holder had not registered the marks for use on labels, documentation,
and packaging.
This was the holding of the Tenth Circuit in United States v. Giles, 213
F.3d 1247, 1253 (10th Cir. 2000) (“Section 2320 does not clearly penalize
trafficking in counterfeit labels which are unattached to any goods.”). In Giles,
the defendant sold patches bearing counterfeit Dooney & Burke trademarks.
The patches could be attached to generic handbags and luggage to make them
counterfeit, but Dooney & Burke had registered the marks for use on handbags
and luggage, not on patches, and the defendant did not sell the fake handbags
and luggage to which the patches were to be attached. The Tenth Circuit
concluded that the patches were labels, not goods, and that the defendant
could not be convicted under § 2320 for trafficking in unattached labels. The
court indicated, however, that the case might have been decided differently
had the marks been registered for use on patches or if the defendant had been
charged with aiding-and-abetting trafficking in counterfeit goods. Id. at 1251
n.6, 1252 & n.7. Thus, a defendant who used a counterfeit mark but did not
provide the good or service himself generally had to be charged under § 2320
in conjunction with conspiracy or aiding-and-abetting. Id. at 1251 n.6; United
States v. Guerra, 293 F.3d 1279, 1286-87 & n.4 (11th Cir. 2002) (affirming
conviction on these grounds).
Congress directly addressed the Giles decision by amending § 2320 to
expressly criminalize trafficking in counterfeit labels, documentation, and
packaging directly:
Whoever intentionally traffics or attempts to traffic in goods
or services and knowingly uses a counterfeit mark on or in
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connection with such goods or services[, or intentionally traffics
or attempts to traffic in labels, patches, stickers, wrappers,
badges, emblems, medallions, charms, boxes, containers, cans,
cases, hangtags, documentation, or packaging of any type or
nature, knowing that a counterfeit mark has been applied
thereto, the use of which is likely to cause confusion, to cause
mistake, or to deceive,] shall, if an individual, be fined not
more than $2,000,000 or imprisoned not more than 10 years,
or both, and, if a person other than an individual, be fined not
more than $5,000,000.
18 U.S.C. § 2320(a) (2006) (bracketed language inserted by the Stop
Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, § 1(b)(1),
120 Stat. 285, 285 (2006)); see H.R. Rep. No. 109-68, at 7 (“This modification
is intended to overrule the holding in the case United States v. Giles ....”). Thus,
beginning in 2006, defendants could be charged with trafficking in labels,
documentation, and packaging with counterfeit marks under § 2320 without
resort to aiding-and-abetting or conspiracy charges.
Despite the focus on labels, documentation, or packaging that bear
inauthentic marks, repackaging authentic goods with inauthentic labels is
criminal only in a limited set of circumstances. See Sections C.3. and D.4. of
this Chapter.
A defendant can be convicted for trafficking in a single good, service, label,
piece of documentation or packaging. See United States v. Foote, 413 F.3d 1240,
1246-47 (10th Cir. 2005) (holding that § 2320’s use of “goods” in the plural
does not preclude prosecution of a person who traffics in a single counterfeit
good).
Whether the things that the defendant trafficked in consist of “goods” or
“services”—or as labels, documentation, or packaging intended to be used with
goods or services—is governed by the victim’s certificate of registration with
the United States Patent and Trademark Office. The certificate of registration
will indicate whether the mark in question had been registered for goods or for
services and, if so, for what class of good or service. See Section B.4.c. of this
Chapter.

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4. The Defendant Used a “Counterfeit Mark”: Definition of a
Counterfeit Mark
The government must prove that the defendant knowingly used a
“counterfeit mark” on or in connection with goods or services, or that a
counterfeit mark was applied to the labels, documentation, or packaging. 18
U.S.C. § 2320(a). To prove this element, the government must also demonstrate
that the counterfeit mark in question meets the statutory definition of a
counterfeit mark in 2320(f )(1)(A).
a. Not Genuine or Authentic
“Counterfeit mark” is a term of art that is defined as follows:
(A) a spurious mark—
(i) that is used in connection with trafficking in any
goods, services, labels, patches, stickers, wrappers, badges,
emblems, medallions, charms, boxes, containers, cans,
cases, hangtags, documentation, or packaging of any type
or nature;
(ii) that is identical with, or substantially indistinguishable
from, a mark registered on the principal register in the
United States Patent and Trademark Office and in use,
whether or not the defendant knew such mark was so
registered;
(iii) that is applied to or used in connection with the goods
or services for which the mark is registered with the United
States Patent and Trademark Office, or is applied to or
consists of a label, patch, sticker, wrapper, badge, emblem,
medallion, charm, box, container, can, case, hangtag,
documentation, or packaging of any type or nature that
is designed, marketed, or otherwise intended to be used
on or in connection with the goods or services for which
the mark is registered in the United States Patent and
Trademark office; and
(iv) the use of which is likely to cause confusion, to cause
mistake, or to deceive.
18 U.S.C. § 2320(f )(1)(A).
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A “spurious” mark is one that is “not genuine or authentic.” Joint Statement,
130 Cong. Rec. 31,675 (1984).
Although this definition appears to indicate that the mark itself must be
counterfeit, rather than the goods or services (or, in a labels case, the labels,
documentation, or packaging), it is well-settled that a genuine or authentic
mark becomes counterfeit when it is used in connection with something else
that is counterfeit. See 4 J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition § 25:15 (4th ed. 2012); United States v. Petrosian, 126
F.3d 1232 (9th Cir. 1997). In Petrosian, the defendant, who filled genuine
Coca-Cola bottles with a substitute carbonated beverage and sold it as CocaCola, contended that his Coca-Cola marks were not counterfeit because his
genuine bottles bore genuine marks. 126 F.3d at 1233. The Ninth Circuit
disagreed, holding that “[w]hen a genuine trademark is affixed to a counterfeit
product, it becomes a spurious mark.... The Coca-Cola mark became spurious
when [defendant] affixed it to the counterfeit cola because the mark falsely
indicated that Coca-Cola was the source of the beverage in the bottles and
falsely identified the beverage in the bottles as Coca-Cola.” Id. at 1234. See
also Section C.3. of this Chapter concerning the repackaging of authentic
goods. This rule should apply equally to services, labels, documentation, and
packaging.
The definition of “counterfeit mark” in § 2320(f )(1)(B) also includes
designations protected by the Olympic Charter Act. See Section D.8. of this
Chapter.
of:

Separate laws punish the counterfeit use of emblems, insignias, and names
•
•
•
•
•
•
•
•
•
•
•

military medals and designations;
veterans’ organizations;
cremation urns for military use;
the seals of the United States President, Vice President, Senate, House
of Representatives, and Congress;
federal agencies;
the Department of Interior’s golden eagle insignia;
police badges;
the Red Cross;
the 4-H club;
the Swiss Confederation;
Smokey the Bear; and

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• Woodsy the Owl.
See 18 U.S.C. §§ 700-716.
b. The Counterfeit Mark Must Be Identical to or Indistinguishable
from a Genuine Mark Owned by Another
Under 18 U.S.C. § 2320(f )(1)(A), a counterfeit mark is a spurious mark
that is “identical with, or substantially indistinguishable from,” a federally
registered mark. This standard is based on the same standard set forth in the
Lanham Act, 15 U.S.C. § 1127. The legislative history suggests that the civil
and criminal standards should be interpreted the same. See Joint Statement, 130
Cong. Rec. 31,675-76 (1984) (noting that the civil and criminal standards
“differ slightly in their terms, but [] are identical in substance,” and citing civil
cases to explain both standards). To the extent the criminal and civil standards
diverge at all, the criminal standard should be interpreted more narrowly only
in cases at the outer margins. United States v. Guerra, 293 F.3d 1279, 1288 (11th
Cir. 2002) (citing Joint Statement, 130 Cong. Rec. 31,675 (stating that § 2320
is not intended to criminalize what would have been “arguable” cases of civil
trademark infringement before the criminal act’s passage)). Note, however, that
although the criminal and civil standards are virtually identical with respect
to what constitutes a “counterfeit,” civil law also prohibits the unauthorized
use of a “colorable imitation of a registered mark,” see 15 U.S.C. § 1114(1)
(a), which by its terms falls short of being a counterfeit mark that is “identical
with, or substantially indistinguishable from” a genuine mark. Nevertheless,
“[b]ecause of the similarity between this definition and the § 2320 definition
of ‘counterfeit mark,’ we find Lanham Act civil counterfeiting cases helpful to
our analysis of criminal counterfeiting cases brought under § 2320(a).” United
States v. Lam, 677 F.3d 190, 199 n.8 (4th Cir. 2012)
Whether a defendant has used a mark that is “substantially indistinguishable”
from a federally registered mark is a fact question that must be determined on a
case-by-case basis. See Joint Statement, 130 Cong. Rec. 31,675 (“the definition
of ‘substantially indistinguishable’ will need to be elaborated on a case-bycase basis”); cf. Colgate-Palmolive v. J.M.D. All-Star Import and Export Inc.,
486 F. Supp. 2d 286, 291 (S.D.N.Y. 2007) (“Cases applying the ‘substantially
indistinguishable’ test are inherently fact intensive.”). Nevertheless, Congress did
give the following guidance on the scope of the substantially indistinguishable
standard:

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Obviously, a mark need not be absolutely identical to a
genuine mark in order to be considered “counterfeit.” Such an
interpretation would allow counterfeiters to escape liability by
modifying the registered trademarks of their honest competitors
in trivial ways. However, the sponsors do not intend to treat as
counterfeiting what would formerly have been arguable, but
not clear-cut, cases of trademark infringement.
Joint Statement, 130 Cong. Rec. 31,676 (1984); accord Lam, 677 F.3d at
199 (quoting United States v. Guerra, 293 F.3d 1279, 1288 (11th Cir. 2002)
(quoting Joint Statement, 130 Cong. Rec. 31,675)); Pepe (U.K.) Ltd. v. Ocean
View Factory Outlet, 770 F. Supp. 754, 758 (D.P.R. 1991) (same); ColgatePalmolive, 486 F. Supp. 2d at 289 (same). For example, in Pepe, the court
held that a defendant uses a mark that is substantially indistinguishable from a
registered mark when the similarities between the marks presents “more than
an arguable case of infringement.” 770 F. Supp. at 759 (emphasis in original).
In Montres Rolex, S.A. v. Snyder, a case that pre-dates the enactment of § 2320
but was cited with approval in the statute’s legislative history (130 Cong. Rec.
at 31,675-76), the Second Circuit acknowledged that the difference between
the “likely to cause confusion” and “substantially indistinguishable” standards
“may be more theoretical than real” in some cases. 718 F.2d 524, 531 (2d
Cir. 1983). More recently, in reviewing a jury’s finding that two marks are
substantially indistinguishable from one another, the Fourth Circuit held that
“a good displaying an allegedly counterfeit trademark must possess pronounced
differences from a legitimate trademarked good for us to declare that no rational
jury could find that it was a counterfeit.” Lam, 677 F.3d at 199 (emphasis
added).
“In general, however, [word] marks that are similar to the registered mark,
but differ by two or more letters, are not likely to be considered counterfeit,”
Colgate-Palmolive, 486 F. Supp. 2d at 291, suggesting that marks that differ in
only one letter may be considered counterfeit. For example, use of the mark
“Prastimol” for a medication that is the functional equivalent of the product
sold under the trademark “Mostimol” would not be a crime. Joint Statement,
130 Cong. Rec. 31,676. Nor would a ‘P’ superimposed over a ‘V’ on a fleurde-lis pattern be substantially indistinguishable from an ‘L’ superimposed over
a ‘V’ over the same pattern, or using “Amazonas” rather than “Amazon,” or
“Bolivia” rather than “Bulova.” See Montres Rolex, 718 F.2d at 531-32 (noting
that these examples might create a likelihood of confusion without being
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substantially indistinguishable, in case interpreting Customs’s power to seize
counterfeits).
A counterfeiter who sells a look-alike with an altered brand name can still
be convicted, however, if his look-alike reproduces other registered trademarks.
See United States v. Yi, 460 F.3d 623, 627 n.1, 629 n.4 (5th Cir. 2006) (holding
that even though defendant’s batteries were named “Dinacell” rather than
“Duracell,” the batteries were still counterfeit because they used Duracell’s
copper-top and black-body trademark). Likewise, a counterfeiter who sells a
look-alike with an altered trademarked design can still be convicted if the lookalike reproduced another registered design mark. Lam, 677 F.3d at 198-99
(rejecting defendant’s argument that “[n]o rational jury would conclude that
a mark with a knight integrated onto it was a counterfeit of a mark without
a knight” and holding that a rational jury could find that defendant’s mark
bearing a plaid and an equestrian knight was substantially indistinguishable
from Burberry’s federally registered plaid or “Check” mark without a knight,
“especially in light of the evidence demonstrating that Burberry often sells
goods displaying the Burberry Check mark and the Burberry Equestrian mark
together”) (internal quotation marks omitted).
Prosecutors should pay special attention to word marks. A trademark can
consist of a symbol, a picture, or a stylized depiction of a word (such as the
distinctive Coca-Cola® cursive mark). A trademark can also consist of a simple
word. A word mark registered in a neutral font and all capital letters “covers all
design features and is not limited to any special form or lettering.” Sally Beauty
Co. v. Beautyco, Inc., 304 F.3d 964, 970 (10th Cir. 2002) (emphasis added)
(citations omitted); 3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair
Competition § 19:58 (4th ed. 2012) (“‘Registrations with typed drawings are
not limited to any particular rendition of the mark and, in particular, are not
limited to the mark as it is used in commerce.’”) (quoting Cunningham v. Laser
Golf Corp., 222 F.3d 943, 950 (Fed. Cir. 2000)); see also Cunningham, 222 F.3d
at 949-50; 37 C.F.R. § 2.52 (2012). In other words, there is a strong argument
that a mark registered in this manner is counterfeited by any infringing use
of the mark, whether in the font used by the mark-holder or not, because the
infringing word mark is substantially indistinguishable from the word mark
itself.
When trying to determine which trademarks the defendant infringed,
prosecutors and agents should consult with the victim. Although the
government itself can search for trademarks on the United States Patent and
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Trademark Office’s website, these searches can be cumbersome. Given the
range of perceptible elements that can be registered as marks—witness the
color pink for Owens Corning fiberglass, the NBC chime, the Burberry plaid,
and the shape of the Coca-Cola bottle (respectively U.S. Trademark Reg. Nos.
1439132 and 2380742, 0916522, 2022789, and 1057884)—the victim is
best suited to identify which elements were registered as marks and which may
have been counterfeited.
Section 2320 does not specify the procedure for establishing at trial that the
counterfeit mark is identical to or substantially indistinguishable from a genuine
registered mark. See Guerra, 293 F.3d at 1288. In Guerra, the Eleventh Circuit
rejected the defendant’s contention at trial that the government must 1) introduce
genuine trademarks affixed to genuine goods, 2) introduce the testimony of a
representative from the mark-holder, and 3) rely on investigative agents who
are experts in the counterfeited product or service. Id.; see also United States v.
Able Time, Inc., 545 F.3d 824, 836 (9th Cir. 2008) (rejecting the proposition
that a factfinder must compare the alleged counterfeit mark with the registered
mark as it appears on actual merchandise and holding that “[o]n remand, the
factfinder may compare the offending mark to the mark on the registration
certificate”). Instead, the Eleventh Circuit ruled that introducing registered
trademark designs and labels produced by authorized licensees was sufficient.
Guerra, 293 F.3d at 1288. Other courts have approved the government’s use
of expert testimony and a comparison between counterfeit and genuine goods.
See United States v. Yamin, 868 F.2d 130, 135 (5th Cir. 1989); United States v.
McEvoy, 820 F.2d 1170, 1172 (11th Cir. 1987) (same). Prosecutors should note
that courts have declined to adopt the point of view of experts in determining
whether defendants used marks that are substantially indistinguishable from
federally registered marks. Montres Rolex, 718 F.2d at 531 (holding that the
same “average purchaser test” for the “likely to cause confusion” infringement
standard applies to the “substantially indistinguishable” standard); Pepe, 770
F. Supp. at 758 (“The court in the Rolex case made the determination whether
a mark was a substantially indistinguishable counterfeit, as opposed to a mere
infringement, from the standpoint of an average purchaser rather than from
the standpoint of an expert.”).
In civil cases, courts have also allowed evidence of actual confusion, such
as customers who were fooled, and trademark surveys. 4 J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition §§ 23:2, 13, 17, 63 (4th ed.
2012). Market surveys are often used in civil cases, but can raise evidentiary
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issues. See, e.g., 6 McCarthy on Trademarks and Unfair Competition §§ 32:158,
170; Citizens Fin. Group v. Citizens Nat’l Bank of Evans City, 383 F.3d 110
(3d Cir. 2004). As of the writing of this Manual, no reported cases address the
admissibility of market surveys in criminal trademark prosecutions.
The procedures and analysis for comparing counterfeit and legitimate
marks are also addressed in Section B.4.g. of this Chapter, which discusses how
to prove likelihood of confusion. See Montres Rolex, 718 F.2d at 531.
Proving that two marks are likely to be confused is not always sufficient to
prove that they are identical or substantially indistinguishable. Likelihood of
confusion is a lower hurdle. See id. at 531-32 (noting examples of marks that were
likely to cause confusion, but which were not substantially indistinguishable
from the real thing: a ‘P’ superimposed over a ‘V’ on a fleur-de-lis pattern
vs. an ‘L’ superimposed over a ‘V’ over the same pattern; “Amazonas” vs.
“Amazon”; and “Bolivia” vs. “Bulova”). For actual comparisons of marks that
were alleged to be confusingly similar, see 3 McCarthy on Trademarks and
Unfair Competition §§ 23:21-40, keeping in mind the potential differences
between civil and criminal cases (see Section B.2. of this Chapter) and the
difference between “likelihood of confusion” and marks being “substantially
indistinguishable.”
c. The Genuine Mark Must Be Federally Registered on the U.S. Patent
and Trademark Office’s Principal Register
The victim’s mark must have been registered on the principal register in the
United States Patent and Trademark Office (“USPTO”), 18 U.S.C. § 2320(f )
(1)(A)(ii), unless the case involves the Olympic symbols (see Section D.8. of
this Chapter).
Federal registration is a jurisdictional element. Thus, § 2320 cannot be
charged if the victim’s mark was only registered on the USPTO’s supplemental
register, recorded with Customs, registered with state agencies, or protected at
common law. However, if a § 2320 charge is unavailable because the mark was
not registered on USPTO’s principal register, alternate charges such as mail
fraud, wire fraud, or state or local trademark charges may still be available. See
Section F. of this Chapter.
Proving the mark’s registration is usually straightforward. Generally, the
government will simply offer a certified copy of the certificate of registration.
The court may take judicial notice of registration certificates. See Fed. R. Evid.
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201(b); Duluth News-Tribune v. Mesabi Publ’g Co., 84 F.3d 1093, 1096 n.2
(8th Cir. 1996); Omega S.A. v. Omega Eng’g, 228 F. Supp. 2d 112, 120 & n.26
(D. Conn. 2002); cf. Island Software and Computer Serv. v. Microsoft Corp.,
413 F.3d 257, 261 (2d Cir. 2005) (approving judicial notice of copyright
registration certificates). Unofficial registration information can be searched on
the USPTO’s website: http://www.uspto.gov/main/trademarks.htm. Formal,
certified copies of the registration certificates can be obtained directly from
USPTO. The Department of Justice has no special method for expediting
delivery of certificates from USPTO, beyond perhaps a grand jury or trial
subpoena, which should be discouraged. The usual method is to obtain certified
copies of certificates from the victims themselves.
Registration may also be proved through other means, such as testimony
of the mark-holder and other circumstantial evidence. For example, in United
States v. DeFreitas, 92 F. Supp. 2d 272, 278 (S.D.N.Y. 2000), the court allowed
the jury to conclude that a mark was registered based on testimony of the markholder for Beanie Babies along with samples of genuine Beanie Babies with tags
bearing registered tags, the mark-holder’s catalogue containing a statement that
the trademark was registered, and testimony of the mark-holder’s CEO. In
United States v. Park, 164 Fed. Appx. 584, 585-86 (9th Cir. 2006), the Ninth
Circuit found that the government had proved registration by introducing a
civil complaint against the defendant in a prior suit that she had settled, in
which the complaint stated that the trademarks were registered; by introducing
testimony of the defendant’s civil attorney in that case, who testified that the
victims were trademark owners at the time of the prior civil action; and by
introducing testimony of an agent who testified that the items seized at the
defendant’s business were identical to items registered as trademarks in the
USPTO.
Prosecutors who intend to prove registration by alternate means, however,
must take care to ensure that the evidence presented is sufficiently detailed
and precise. For example, in United States v. Xu, 599 F.3d 452, 455 (5th Cir.
2010), the Fifth Circuit vacated the defendant’s conviction for trafficking
in a counterfeit version of a pharmaceutical drug called Zyprexa because it
concluded the government failed to prove the registration of the drug’s
trademark. During trial, an employee of the drug’s manufacturer was shown
a counterfeit container of the medication and was asked about the symbol
that appeared next to the drug’s name; the employee responded that it was
the “registered trademark symbol.” Id. at 454. The court concluded this
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testimony was insufficient to prove registration because, as an initial matter,
“the symbol being discussed was on a package of allegedly counterfeit goods,
not authentic drugs, and no effort was made to demonstrate that authentic
Zyprexa carried the same symbol.” Id. Furthermore, the court explained that
the mere statement that the trademark was “registered” was insufficient due to
the fact that it did not specify that the registration appeared on the USPTO’s
principal register, as opposed to on its supplemental register, with Customs, or
perhaps with a state agency. Id. at 455; see also United States v. Xu, No. H-07362, 2008 WL 5122125, at *3-4 (S.D.Tex. Dec. 4, 2008) (explaining district
court’s reasoning for granting judgment of acquittal with regard to additional
counts of trafficking in other counterfeit drugs due to government’s failure to
prove mark registration), vacated, 599 F.3d 452 (5th Cir. 2010).
Registration is prima facie evidence that the registrant owns the mark and
that the registration is valid. 15 U.S.C. § 1057(b). In criminal prosecutions,
the genuine mark is usually treated as “incontestable” if it has been registered
on the principal register for more than five consecutive years. See 15 U.S.C.
§ 1065 (setting out conditions for “incontestability”). A federal trademark
registration may, however, be canceled in whole or part in a civil judicial or
administrative proceeding. See 15 U.S.C. § 1064.
The government need not prove that the defendant was aware that the
mark was registered. 18 U.S.C. § 2320(f )(1)(A)(ii) (stating that a counterfeit
mark is one that is “identical with, or substantially indistinguishable from”
a registered mark “whether or not the defendant knew such mark was so
registered”). See also United States v. Guerra, 293 F.3d 1279, 1287 (11th Cir.
2002) (holding that “it is irrelevant that [the defendant] did not know the
marks were registered in the United States”); United States v. Sung, 51 F.3d 92,
93-94 (7th Cir. 1995) (holding that § 2320’s definition of “counterfeit mark”
imposes on defendants “the duty to inquire into the [registration] status of the
mark”) (citations omitted).
d. The Genuine Mark Must Have Been in Use by the Mark-Holder or
Its Licensee
The genuine mark must also be “in use,” presumably by the mark holder
or his licensee, 18 U.S.C. § 2320(f )(1)(A)(ii). See Section A.1. of this Chapter,
except in cases involving protected Olympic symbols, as discussed in Section
D.8. of this Chapter.

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The term “in use” is not defined or explained in the statute, its legislative
history, or in case law. The Lanham Act, however, defines a trademark’s “use
in commerce” as “the bona fide use of a mark in the ordinary course of trade,
and not made merely to reserve a right in a mark.” 15 U.S.C. § 1127. See also
ConAgra, Inc. v. George A. Hormel, & Co., 990 F.2d 368, 371-72 (8th Cir.
1993) (affirming district court’s finding that the trademark application was
based on actual sales and not a “sham use”). Civil cases have held that “in use”
means use in the United States, not in other nations. See Marshak v. Treadwell,
240 F.3d 184 (3d Cir. 2001); Rivard v. Linville, 133 F.3d 1446, 1448-49 (Fed.
Cir. 1998); see also United States v. Penton, 303 Fed. Appx. 774, 780-81 (11th
Cir. 2008) (stating that defendant was correct when he argued that because
products bearing particular marks were not sold in the United States they
could not be “in use” for the purposes of § 2320).
To prove that the genuine mark was in use during the offense, the government
may not rely solely on a certification of registration that shows that the victim
registered the trademark before the date of the offense. Registration merely
requires a mark-holder to have a bona fide intent to use the mark, which does
not translate into actual use. United States v. Foote, 238 F. Supp. 2d 1271, 1278
(D. Kan. 2002), aff’d, 413 F.3d 1240, 1248 (10th Cir. 2005); United States
v. Guerra, 293 F.3d 1279, 1290 (11th Cir. 2002). Nor may the government
establish use by relying on the jurors’ probable experience with the trademark
at issue, since the jurors’ experience is not legal evidence. Foote, 238 F. Supp.
2d at 1279 n.11.
Evidence that will suffice to demonstrate a mark is “in use,” however,
includes proof of registration in conjunction with evidence of the first use by
the mark-holder and testimony by a representative of the mark-holder that the
mark appears on every good produced; Foote, 413 F.3d at 1248, aff’g 238 F.
Supp. 2d at 1279; a magazine showing the genuine trademarked goods for sale
at the time of offense, Guerra, 293 F.3d at 1291; or a civil complaint from a
civil action alleging that the victim used the mark before the criminal offense
in conjunction with testimony that the trademark owners had protected their
marks during the criminal offense, United States v. Park, 164 Fed. Appx. 584,
585-86 (9th Cir. 2006).
Although § 2320(f )(1)(A)(ii) does not specify when the registered
mark must have been “in use,” courts have held that it must have been in
use during the defendant’s alleged offense. See Park, 164 Fed. Appx. at 585
(stating that “registration and use at the time of [a trademark] conspiracy can
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be indirectly established if the government provides evidence that trademarks
for the relevant items were registered and used prior to and after the conspiracy
was formed, as long as the evidence of preceding and subsequent registration
and use is reasonably close to the time of the actual conspiracy”); Foote, 238
F. Supp. 2d at 1278 n.8 (holding that without a temporal limit “the statute
would allow a prosecution for trafficking in products with trademarks that the
trademark owner did not begin to use until trial”); Guerra, 293 F.3d at 1291.
The government should prove that the victim used his genuine mark as early as
when the defendant first used his counterfeit mark, if not earlier, and that the
victim continued using the genuine mark throughout the offense. Foote, 238 F.
Supp. 2d at 1274 n.4, 1277-79. Proving that the mark was in use at the time of
trial may not suffice to prove that it was in use during the offense. Id. at 1278.
e. Use of the Counterfeit Mark “On or In Connection With” Goods
or Services
For cases involving goods or services under 18 U.S.C. § 2320(a)(1), the
government must prove that the defendant used the counterfeit mark “on or
in connection with” goods or services. Similarly, in proving that a good or
service is a “counterfeit military good or service” for offenses involving military
counterfeits charged under § 2320(a)(3), the government must prove that the
good or service “uses a counterfeit mark on or in connection with such good or
service.” 18 U.S.C. § 2320(f )(4).
In a case involving labels or packaging under 18 U.S.C. § 2320(a)(2), as
of the 2006 amendments, the government must show that the counterfeit
mark “is applied to” a label, documentation, packaging, or the like that is
“designed, marketed, or otherwise intended to be used on or in connection with
the goods or services for which the mark is registered.” § 2320(f )(1)(A)(iii)
(emphasis added). The 2006 amendments addressing labels also recognized
that a counterfeit mark might not just be applied to or used in connection with
labels, documentation, and packaging, but might even “consist[] of ” a label,
documentation, or packaging component, as was discussed in United States
v. Giles, 213 F.3d 1247, 1252 n.7 (10th Cir. 2000). See Section B.3.c. of this
Chapter.
The term “in connection with” has a broader meaning than “on.” For
example, a defendant who uses a counterfeit mark to advertise a name-brand
good or service and then provides an unmarked, off-brand or no-brand good
or service can be said to have used a counterfeit mark “in connection with” the
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good or service, even if he did not use it “on” the good or service. This conduct
should therefore be covered by § 2320.
Even before the 2006 amendments addressing counterfeit labeling, a person
who trafficked in labels, documentation, or packaging—unattached to the
underlying goods—may have been prosecuted under a theory of conspiracy or
aiding-and-abetting a substantive counterfeit goods offense. See Section B.3.c.
of this Chapter. The 2006 amendments, however, allow such a defendant to
be charged under § 2320 directly and without resort to theories of secondary
liability and in cases where the defendant acted alone. Now, the government
need only show that the labels, documentation, or packaging were “designed,
marketed, or otherwise intended to be used on or in connection with the goods
or services.” § 2320(f )(1)(A)(iii).
Because the statute does not define what constitutes “use” of a counterfeit
mark by a defendant, defendants may argue that this term should be given
a restrictive meaning that does not reach their activities. The Third Circuit
rejected this kind of challenge in United States v. Diallo, 575 F.3d 252 (3d
Cir. 2009). In Diallo, law enforcement conducted a traffic stop and found
counterfeit Louis Vuitton handbags sealed in plastic bags in the defendant’s
vehicle. Id. at 253-54. Citing Bailey v. United States, 514 U.S. 137 (1995), a
Supreme Court opinion interpreting the meaning of “uses” in the context of
a firearms statute, the defendant asserted that “use” of the counterfeit mark
“require[s] active employment of the mark by showing or displaying the goods”
bearing that mark. Diallo, 575 F.3d at 254. The Third Circuit disagreed, noting
that Congress intended to “reach[] a stream of illegal commerce [in counterfeit
items] and not simply its point of sale.” Id. at 260. The court concluded that “use”
should be given its “ordinary and natural meaning”; the defendant therefore
could be said to have “used” the Louis Vuitton mark because possession of the
handbags bearing the counterfeit mark “enabled him to represent to others falsely - that he owned genuine Louis Vuitton handbags” and to enjoy having
such bags in his store’s inventory, even if they had not yet been offered for sale.
Id. at 260-61.
f. The Counterfeit Mark Must Have Been Used for the Same Class of
Goods or Services for Which the Genuine Mark Was Registered
Section 2320’s definition of a “counterfeit mark” requires the government
to show that the defendant’s mark is “used in connection with trafficking in
any goods [or] services,” “identical with, or substantially indistinguishable
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from, a mark registered on the principal register in the [USPTO],” and “used
in connection with the goods or services for which the mark is registered with
the [USPTO].” 18 U.S.C. § 2320(f )(1)(A)(i)-(iii) (but see Section D.8. of this
Chapter concerning cases involving Olympic symbols). Congress intended this
requirement to be an important and explicit distinction between criminal and
civil trademark infringement cases. “[A] plaintiff with a Federal registration
for ... [a mark] on typewriters might have a [civil] Lanham Act remedy against
a defendant who used that mark to identify typing paper, even though the
plaintiff had not registered that mark for use in connection with typing paper.
Under [§ 2320], however, the use of the mark ... on typing paper would not
count as the use of a ‘counterfeit mark.’” Joint Statement, 130 Cong. Rec.
31,676 (1984). Prosecutors therefore should be careful to ensure that the class
of goods and services in which the defendant trafficked match the class of
goods and services for which the victim’s mark was registered.
But what about when the defendant uses the mark on labels, documentation,
or packaging that are for—but unattached to—the class of goods or services
indicated on the registration certificate, and not directly on the underlying
goods or services themselves? The 2006 amendments addressed this issue by
amending § 2320 to allow the prosecution of traffickers in counterfeit labels,
documentation, and packaging directly under § 2320. See Section B.3.c. of
this Chapter for a discussion of the 2006 amendments and United States v.
Giles, 213 F.3d 1247, 1253 (10th Cir. 2000). In doing so, Congress did not
relax the requirement of matching the defendant’s goods and services to the
class of goods and services on the registration certificate. Instead, Congress
adapted the requirement for labels, documentation, and packaging cases so
that the government must prove that those items were “designed, marketed, or
otherwise intended to be used on or in connection with the goods or services
for which the mark is registered in the United States Patent and Trademark
Office.” § 2320(f )(1)(A)(iii).
The class of goods or services for which a particular mark was registered can
be found on the mark’s registration certificate. For information on obtaining
these certificates, see Section B.4.c. of this Chapter.
g. Likelihood of Confusion, Mistake, or Deception
The government must prove that the counterfeit mark is “likely to cause
confusion, to cause mistake, or to deceive.” 18 U.S.C. § 2320(f )(1)(A)(iv).
(For the standards in cases involving protected Olympic symbols, see Section
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D.8. of this Chapter.) Because this requirement is included in the definition
of a “counterfeit mark,” it is not necessary for prosecutors to separately charge
that the counterfeit mark is “likely to cause confusion, to cause mistake, or to
deceive” in the indictment, particularly with respect to charges under 18 U.S.C.
§ 2320(a)(1) and (3). Prosecutors may, however, want to consider including
the language when charging trafficking in labeling components in violation
of 18 U.S.C. § 2320(a)(2), because that subsection expressly incorporates the
language “likely to cause confusion, to cause mistake, or to deceive” in the
statutory provision. Although courts and commentators routinely focus only
on the counterfeit mark’s propensity to confuse, the statute also allows for proof
of mistake or deception, and all three should be charged in the indictment.
The government does not have to prove that the defendant’s conduct
resulted in actual confusion because “[t]he statute expressly requires only
likelihood of confusion.” United States v. Yamin, 868 F.2d 130, 133 (5th Cir.
1989) (emphasis added).
Defendants often argue that their conduct raised no likelihood of confusion
because the purchaser knew that the goods were counterfeit, for example
because the fake goods were offered at an unusually low price, or because the
defendant specifically told the purchaser that the goods were counterfeit. Courts
have uniformly rejected these arguments under the theory of “secondary” or
“post-sale” confusion (i.e., the confusion of the direct purchaser’s downstream
customers or even of non-purchasers who could be confused by seeing the
counterfeit merchandise on the street). See, e.g., United States v. Foote, 413 F.3d
1240, 1245-6 (10th Cir. 2005); United States v. Hon, 904 F.2d 803, 808 (2d
Cir. 1990); Yamin, 868 F.2d at 133; United States v. Torkington, 812 F.2d 1347,
1352 (11th Cir. 1987); United States v. Gantos, 817 F.2d 41, 43 (8th Cir. 1987);
United States v. Gonzales, 630 F. Supp. 894, 896 (S.D. Fla. 1986) (denying
motion to dismiss § 2320 indictment because defendants’ low price did not
preclude finding that they could cause confusion, mistake or deception). For
example, in Foote, the defendant argued that because he “openly advertised
that he sold counterfeit merchandise” and “informed each customer that his
merchandise was fake,” his actions did not meet the confusion requirement
in § 2320. Foote, 413 F.3d at 1245. The Tenth Circuit rejected this argument
because the confusion requirement is “not restricted to instances in which direct
purchasers are confused or deceived by the counterfeit goods.” Id. (internal
quotation marks omitted) (citing Yamin, 868 F.2d at 132). Rather, the plain
language of the statute indicates that it is “the defendant’s use of the product
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in commerce (i.e., the sale of the counterfeit product) that is likely to cause
confusion, mistake, or deception in the public in general.” Foote, 413 F.3d at
1246; see also Torkington, 812 F.2d at 1353 (“A trademark holder’s ability to
use its mark to symbolize its reputation is harmed when potential purchasers of
its goods see unauthentic goods and identify these goods with the trademark
holder.”) (emphasis added) (citations omitted); S. Rep. No. 98-526 (1984),
reprinted in 1984 U.S.C.C.A.N. 3627.
The post-sale confusion doctrine was originally developed by courts in
interpreting the identical confusion provision in the Lanham Act. See 4 J. Thomas
McCarthy, McCarthy on Trademarks and Unfair Competition § 23:7 (4th ed.
2012). Courts adopted the doctrine in criminal cases because to hold otherwise
would undermine the goals of trademark protection. Section 2320 was “not
just designed for the protection of consumers,” but also for “the protection of
trademarks themselves and for the prevention of the cheapening and dilution
of the genuine product.” Hon, 904 F.2d at 806; see also Torkington, 812 F.2d at
1352-53; Stop Counterfeiting in Manufactured Goods Act, H. R. Rep. 10968, at 8 n.2 (2005), reprinted in 2006 U.S.C.C.A.N. 211, 216 (“Congress was
concerned not only that trademark counterfeiting defrauds purchasers, ... but
also that counterfeiters can earn enormous profits by capitalizing on the ...
efforts of honest manufacturers at little expense to themselves.”) (citations,
alterations in original, and internal quotation marks omitted). The Second
Circuit interpreted “section 2320’s confusion requirement to include the nonpurchasing public advances the important purpose underlying the trademark
laws of protecting the trademark owner’s investment in the quality of the mark
and his product’s reputation, one that is independent of the goal of preventing
consumer deception.” Hon, 904 F.2d at 806; see also United States v. Farmer,
370 F.3d 435, 441 (4th Cir. 2004) (Congress intended to give trademark
owners “the ‘right to control the quality of the goods manufactured and sold’
under that trademark”) (citations omitted). This is the same reason why the
government need not demonstrate that the counterfeit product is of lesser
quality than the genuine product. E.g., Farmer, 370 F.3d at 441. Even if the
consumer is not defrauded, the counterfeiter is still trading off another’s name
without authorization. See Section D.1. of this Chapter.
Because the government need only prove the likelihood of confusion, it
need not prove that the defendant intended to defraud or mislead purchasers.
See United States v. Brooks, 111 F.3d 365, 372 (4th Cir. 1997) (rejecting defense
that defendants did not use counterfeit marks “for the purpose of deception
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or to cause confusion or mistake”); Yamin, 868 F.2d at 132 (holding that the
statute’s application is not restricted to instances in which direct purchasers
are confused or deceived by the counterfeit goods); Gantos, 817 F.2d at 4243 (affirming conviction even though defendant disclosed to his immediate
customers that Rolex watches were copies); Torkington, 812 F.2d at 1353 n.7
(noting that Congress eliminated from § 2320 a mens rea element consisting of
an intent to deceive or defraud).
Likelihood of confusion can be proved with a variety of evidence, such as
the testimony of customers who mistakenly bought fakes, experts on market
confusion, or victim representatives who can discuss the fake and real goods’
similarities. See, e.g., 4 J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition §§ 23:2, 13, 17, 63 (4th ed. 2012); see also United States
v. Penton, 303 Fed. Appx. 774, 781-82 (11th Cir. 2008). Although evidence
of actual confusion is not necessary, it can often be very persuasive. See United
States v. McEvoy, 820 F.2d 1170, 1172 (11th Cir. 1987) (affirming conviction
based on, inter alia, expert testimony that customers often confuse fake and
genuine watches and on a defense witness’s inability to distinguish between
fake and genuine watches).
It is worth noting that in civil counterfeiting cases, where two marks are
identical or substantially indistinguishable and are used on the same good,
confusion is presumed. E.g., Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145,
148 (4th Cir. 1987) (“Where, as here, one produces counterfeit goods in
an apparent attempt to capitalize upon the popularity of, and demand for,
another’s product, there is a presumption of a likelihood of confusion.”). In
such civil counterfeiting cases, federal courts do not consider the “Polaroid”
factors set forth in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d
Cir. 1961), commonly associated with civil trademark infringement cases. Id.
(test used in civil cases to determine likelihood of confusion unless goods are
identical and directly competitive); Colgate-Palmolive v. J.M.D. All-Star Import
and Export Inc., 486 F. Supp. 2d 286, 289 (S.D.N.Y. 2007) (“When counterfeit
marks are involved, it is not necessary to consider the factors set out in Polaroid
[], which are used to determine whether a mark is a colorable imitation of a
registered mark that creates a likelihood of confusion about it source, because
counterfeit marks are inherently confusing.”) (internal quotation marks and
citations omitted).
Unlike civil counterfeit trademark law, and as already noted, § 2320(f )’s
definition of “counterfeit mark” expressly requires the government to prove
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likelihood of confusion in a criminal counterfeiting case. Congress included
this requirement “to ensure that no conduct will be criminalized by this act
that does not constitute trademark infringement under the Lanham Act.”
Joint Statement, 130 Cong. Rec. 31,675 (1984). Nevertheless, prosecutors
should resist defendants’ attempts to require the government to prove the civil
Polaroid factors to determine likelihood of confusion because of the heightened
requirements already imposed by the other elements of § 2320. Where those
heightened elements are met, likelihood of confusion is all but certain. For
instance, the government can only bring a case under § 2320 where the class
of goods are identical. See § 2320(f )(1)(A)(i)-(iii). Section 2320’s definition
of a “counterfeit mark” requires the government to show that the defendant’s
mark is “used in connection with trafficking in any goods [or] services,”
“identical with, or substantially indistinguishable from, a mark registered on
the principal register in the [USPTO],” and “used in connection with the
goods or services for which the mark is registered with the [USPTO].” Id. In
other words, the government already must meet a requirement not present in
civil counterfeiting cases – that a defendant used their counterfeit mark on the
same class of goods on which the trademark owners use their genuine, federally
registered marks. “Where the products are identical and the jury has concluded
that the defendant has met the two-pronged mens rea standard of section 2320,
a requirement that confusion among actual or potential purchasers be shown is
unnecessary.” United States v. Hon, 904 F.2d 803, 808 (2d Cir. 1990); United
States v. Torkington, 812 F.3d 1347, 1351 n.4 (11th Cir. 1987) (the likelihood
of confusion “element should be easily satisfied if the other elements of a ‘counterfeit
mark’ have been proven – since a counterfeit mark is the most egregious example of a
mark that is likely to cause confusion”) (quoting Joint Statement, 130 Cong. Rec.
31,675 (1984)) (emphasis in original).
For the same reasons, prosecutors should also oppose attempts to compel
courts to incorporate the “Polaroid factors” in jury instructions regarding
§ 2320’s likelihood of confusion requirement. Hon, 904 F.2d at 808, 809
(rejecting defendant’s appeal for failure to instruct on Polaroid factors because
“the non-exclusive Polaroid factors themselves ... are designed to assess
infringement ‘[w]here the products are different’” and that “[a] defendant is not
entitled to a jury charge simply to create a reasonable doubt when on the facts
and the law as correctly applied there should be none”) (quoting Polaroid, 287
F.2d at 495); United States v. McEvoy, 820 F.2d 1170, 1172, 1172 n.1 (11th Cir.
1987) (rejecting appeal for failure to “give an instruction which listed factors
to be considered in determining” likelihood of confusion and expressing “no
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opinion as to whether the district court would have abused its discretion if it
had given the requested instruction”). In any event, criminal jury instructions
need not set forth the Polaroid multi-factor test because it is not contained in
the statute. See McEvoy, 820 F.2d at 1172.
As to how the comparison should be made between the counterfeit and
legitimate products at trial, civil law suggests three principles. First, counterfeit
and genuine marks should “be compared in their entireties” and “should
not be dissected or split up into [] component parts [with] each part then
compared with corresponding parts” because “[i]t is the impression that the
mark as a whole creates on the average reasonably prudent buyer and not
the parts thereof, that is important.” 4 J. Thomas McCarthy, McCarthy on
Trademarks § 23:41 (4th ed. 2012) (footnote omitted); see also id. § 23:42.
Second, because the average purchaser focuses on two marks’ similarities rather
than their differences, the fact finder should do the same. Id. § 23:41. Third,
whether the counterfeit and genuine marks should be compared side by side
or serially depends on how the average consumer would encounter them in the
market: “Where products in the relevant market are not typically displayed in
the same locations, centering on whether they are likely to be distinguished
when viewed simultaneously is incorrect, and will result in a faulty likelihoodof-confusion analysis.” Louis Vuitton Malletier v. Burlington Coat Factory
Warehouse Corp., 426 F.3d 532, 534 (2d Cir. 2005) (Calabresi, J.) (discussing
likelihood of confusing handbags); see also 4 McCarthy on Trademarks § 23:5859. But see Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 117
(2d Cir. 2006) (suggesting that side-by-side comparison may be acceptable to
determine whether goods are identical). Finally, in a criminal case, even if some
of the markings on the defendant’s goods deviate from those on the original
and his goods are of noticeably poor quality, they are counterfeit so long as his
goods bear at least one trademark identical to or substantially indistinguishable
from the original. See United States v. Yi, 460 F.3d 623, 627 n.1, 629 n.4, 637
n.14 (5th Cir. 2006).
5. The Defendant Used the Counterfeit Mark “Knowingly”
The final element required for a § 2320 offense is that the defendant
“knowingly” used the counterfeit mark on or in connection with the trafficked
goods or services. In cases involving labels, documentation, or packaging, the
government must prove that the defendant trafficked in such items “knowing
that a counterfeit mark has been applied thereto, the use of which is likely to
cause confusion, to cause mistake, or to deceive.” § 2320(a) (as amended by the
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121

Stop Counterfeiting in Manufactured Goods Act, Pub L. No. 109-181, § 1,
120 Stat. 285 (2006)).
To prove this element, the government must present evidence that
the defendant had “an awareness or a firm belief ” that the mark used was
counterfeit. See Joint Statement, 130 Cong. Rec. 31,674 (1984).
Knowledge can also be proved with evidence that the defendant acted with
willful blindness, conscious avoidance, or deliberate ignorance, which means
the defendant “deliberately closed his eyes to what otherwise would have been
obvious to him concerning the fact in question.” See United States v. Brodie,
403 F.3d 123, 132 (3d Cir. 2005) (quotation and citation omitted). “[I]f the
prosecution proves that the defendant was ‘willfully blind’ to the counterfeit
nature of the mark, it will have met its burden of showing ‘knowledge.’” Joint
Statement, 130 Cong. Rec. 31,674 (1984) (citing United States v. Jewell, 532
F.2d 697 (9th Cir. 1976) (other citations omitted)); see also United States v.
Hiltz, 14 Fed. Appx. 17, 19 (1st Cir. 2001); United States v. Hamamoto, No.
99-10019, 2000 WL 1036199, *2 (9th Cir. July 27, 2000); cf. Tal S. Benschar
et al., Proving Willfulness in Trademark Counterfeiting Cases, 27 Colum. J.L.
& Arts 121, 125 (2003). Although certain circuits may be generally reticent
to allow proof of willful blindness to satisfy actual knowledge in criminal
cases, Congress’s specific intent with respect to § 2320(a) should trump that
reluctance in these cases.
On the other hand, “a manufacturer who believes in good faith that he or
she has a prior right to use a particular mark, or that a mark does not infringe a
registered mark, could not be said to ‘know’ that the mark is counterfeit.” Joint
Statement, 130 Cong. Rec. 31,674 (1984).
The government may prove the defendant’s knowledge or willful blindness
of a counterfeit mark through direct or circumstantial evidence. Circumstantial
evidence could include evidence that:
•
•
•
•

122

the defendant purchased or sold goods after notice of potential
infringement;
the defendant knew that the victim distributed its goods only through
authorized dealers, when the defendant and his supplier were not
authorized dealers;
the goods came from a questionable supplier;
the defendant or his source used coded invoices for branded
merchandise;
Prosecuting Intellectual Property Crimes

•
•

the goods were of inferior quality; or
the goods were bought or sold for an unusually low price.

Cf. Tal S. Benschar et al., Proving Willfulness in Trademark Counterfeiting Cases,
27 Colum. J.L. & Arts 121, 130-35 (2003) (discussing civil cases).
For more case examples, see United States v. Lam, 677 F.3d 190, 200 n.10
(4th Cir. 2012) (finding that “[t]he government presented ample evidence at
trial to allow a reasonable jury to conclude that Appellants were aware that
the marks on their handbags and wallets were counterfeit, including evidence
of: their use of multiple shell companies and multiple ports to import the
counterfeit goods, the manner in which they transported and concealed the
counterfeit merchandise, the civil lawsuit Burberry instituted against them,
and the multiple seizure notices they received from CBP”); United States v.
Barry, 390 Fed. Appx. 949, 950-51 (11th Cir. 2010) (per curiam); United
States v. Garrison, 380 Fed. Appx. 423, 426 (5th Cir. 2010) (per curiam)
(sufficient evidence of deliberate indifference existed where defendant was
previously notified that the merchandise he was selling was counterfeit, he
knew he did not have necessary license to sell trademarked merchandise, and
cost of merchandise was very low); United States v. Hatem Abu Hassan, 280 Fed.
Appx. 271, 274 (4th Cir. 2008) (per curiam) (defendant knew pills sold to an
undercover officer were counterfeit because defendant assured the undercover
officer the pills were “effective” and provided the undercover officer with a
free sample of the pills, the packaging of the counterfeit pills did not indicate
their source, and defendant had an “abundant supply” of the pills); United
States v. George, 233 Fed. Appx. 402, 404-05 (5th Cir. 2007) (per curiam)
(evidence was sufficient to prove willful blindness where, inter alia, licensed
pharmacist knew prices he was paying for drugs were far below market rate and
he failed to inquire about the legitimacy of the medication); United States v.
Park, 164 Fed. Appx. 584, 585-86 (9th Cir. 2006) (holding that government
demonstrated knowing use of a counterfeit mark by introducing settlement
agreement from an earlier civil action between defendant and victim in which
she had agreed not to sell identical merchandise with which she was caught in
criminal case) (unpublished); United States v. Yi, 460 F.3d 623, 629-30 (5th Cir.
2006) (jury could conclude that defendant knew the marks were counterfeit,
notwithstanding his numerous factual counterarguments, in light of the
defendant’s admissions, attempt to bribe a Customs agent, receipt of cease-anddesist letters, and the counterfeit goods’ poor quality); United States v. Guerra,
293 F.3d 1279, 1287-88 (11th Cir. 2002) (citing defendant’s knowledge that
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123

the counterfeit labels he produced were not all being sold to authorized dealers
of Cuban cigars and that the purchasers of defendant’s counterfeit labels did
not purport to be authorized dealers themselves); United States v. Jewell, 532
F.2d 697, 699-702 (9th Cir. 1976) (upholding willful blindness instruction
when defendant had declined to buy drugs from a stranger but then agreed to
drive the stranger’s car from Mexico to the United States for $100, while he
suspected there was something wrong or illegal with the car and examined the
car but avoided investigating an apparently hidden compartment in the trunk
that was later found to contain drugs) (cited in § 2320’s legislative history);
United States v. Hamamoto, No. 99-10019, 2000 WL 1036199, at *1 (9th
Cir. July 27, 2000) (reasoning that knowledge element satisfied by evidence
that defendant, a customs agent in Guam, received bribes to clear airway
bills for goods imported from Korea, a primary source of counterfeit goods
to Guam); United States v. Sung, 51 F.3d 92, 93-94 (7th Cir. 1995) (holding
that although the victim’s genuine mark was not always identified with the
symbol, defendant’s knowledge that the “marks were on the bottles, caps,
and boxes” of the counterfeit shampoo he sold sufficed because § 2320(f )(1)
(A)(ii) imposes on the defendant “the duty to inquire about the status of the
mark”); United States v. Rodriguez, Nos. 88-1125, 88-1127, 1989 WL 69934,
at *2 (9th Cir. June 23, 1989) (citing defendant’s own distinction between
“phony” and “real” Rolex watches, defendant’s inability to sell the counterfeits
at work, and defendant’s admission that she had to be quiet about selling them);
United States v. McEvoy, 820 F.2d 1170, 1172-73 (11th Cir. 1987) (rejecting
defendants’ contention that § 2320 was unconstitutionally vague because
defendants appeared to know “that their actions in selling the watches violated
the law,” particularly when defendants admitted that the watches seized by the
government contained trademarks virtually identical to registered trademarks
for Rolex, Piaget, and Gucci).

®

For a case in which circumstantial evidence was insufficient, consider
United States v. Sultan, 115 F.3d 321 (5th Cir. 1997). In Sultan, the defendant
shared a warehouse with an auto parts dealer who obtained re-manufactured
auto parts and altered them to make them look new. Id. at 323-24. Although
the two businesses were kept separate, the defendant purchased a large
amount of merchandise from the auto parts dealer. Id. at 324. In holding
that the government failed to show that the defendant knew that he was
selling counterfeit parts, the Fifth Circuit largely rejected the government’s
circumstantial evidence of knowledge, including:
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•
•
•

•

•

The defendant’s penchant for thriftiness and knowledge of market
prices. Id. at 326.
The defendant’s inconsistent statements to investigators (because he
may have made these statements for non-criminal reasons). Id.
The defendant shared the warehouse space with the auto parts dealer
(which alone was not sufficient because the defendant’s mere presence
in a climate of criminal activity could not serve as a basis for conviction).
Id. at 328.
The counterfeit parts’ low prices (which alone were not sufficient
evidence of knowledge when there were legal ways to obtain goods
at this price range and the defendant was paying 80% to 90% of the
market price for legitimate distributors). Id. at 329.
Evidence of the defendant’s knowledge regarding legitimate packaging
(because there was no evidence that the defendant was aware that the
packaging materials stored by the auto parts dealer were counterfeit,
particularly when one witness never saw the defendant in the
counterfeit room and another witness testified that the defendant kept
his inventory separate from the auto parts dealer). Id. at 329-30.

Holding that this circumstantial evidence required the jury to go “beyond
making reasonable inferences” by “making unreasonable leaps,” the court
reversed the conviction on the ground that there was insufficient evidence to
support the jury’s finding that the defendant knowingly used a counterfeit
mark beyond a reasonable doubt. Id. at 330.
The government need not prove that the defendant knew that the mark
he counterfeited was registered with the United States Patent and Trademark
Office. See Section B.4.c. of this Chapter. Nor must the government prove that
the defendant knew that his conduct constituted a crime. Hamling v. United
States, 418 U.S. 87, 123 (1974); United States v. Baker, 807 F.2d 427, 42830 (5th Cir. 1986); United States v. Yu Chunchai, No. 10-50540, 2012 WL
1332404, at *1 (9th Cir. Apr. 18, 2012) (unpublished) (“The statute does not
require that the government prove that the defendant knew that his conduct
was illegal ....”). And at least one unpublished Ninth Circuit opinion has held
that the government need not prove that the defendant “knew that the mark
was likely to cause confusion.” Yu Chunchai, 2012 WL 1332404, at *1.
Finally, in Lam, the Fourth Circuit held that defendants waived their right
to raise for the first time on appeal a sufficiency challenge to a jury’s finding
that defendants knowingly used a counterfeit mark where defendants failed
III.Trafficking In Counterfeit Marks

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to raise that challenge in an earlier Rule 29(c) motion raising other specific
grounds for challenging their § 2320 conviction. 677 F.3d at 200.
6. Trafficking in Counterfeit Military Goods or Services
The National Defense Authorization Act for FY 2012 (“NDAA”), Pub. L.
No. 112-81, 125 Stat. 1298 (2011), amended § 2320 to create a new offense
for trafficking in “counterfeit military goods or services.” Specifically, the new
offense provides enhanced criminal penalties for anyone who:
traffics in goods or services knowing that such good or service is
a counterfeit military good or service the use, malfunction, or
failure of which is likely to cause serious bodily injury or death,
the disclosure of classified information, impairment of combat
operations, or other significant harm to a combat operation, a
member of the Armed Forces, or to national security....
18 U.S.C. § 2320(a)(3). The amendments also define the new term “counterfeit
military good or service”:
the term “counterfeit military good or service” means a good or
service that uses a counterfeit mark on or in connection with
such good or service and that—
(A) is falsely identified or labeled as meeting military specifications, or
(B) is intended for use in a military or national security application...
18 U.S.C. § 2320(f )(4).
Although the new “counterfeit military good” offense is located in a
separate subsection (§ 2320(a)(3)) from the preexisting counterfeit goods
offense (§ 2320(a)(1)), a charge under the “counterfeit military” provision will
require proving essentially all the same elements of a traditional counterfeit
goods charge under § 2320(a)(1), plus several additional elements. That
is, a § 2320(a)(3) charge requires that the defendant “traffic” in “goods or
services,” and must act “knowing[ly],” just as in § 2320(a)(1). Whereas
§ 2320(a)(1) requires that the defendant “knowingly use a counterfeit mark
on or in connection with such good or service,” § 2320(a)(3) requires that
the defendant act “knowing that such good or service is a counterfeit military
good or service.” A “counterfeit military good or service” is defined as a good
or service “that uses a counterfeit mark on or in connection with such good
or service,” as well as meeting certain other criteria. 18 U.S.C. § 2320(f )(4).
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The counterfeit military good or service offense can thus be thought of as an
enhancement of the traditional § 2320(a)(1) “counterfeit goods” charge, where
certain additional elements are met. Some of those elements are set forth in the
definition of “counterfeit military good or service,” while other elements are
included in the offense language in § 2320(a)(3).
a. “Counterfeit Military Good or Service”
As noted above, to qualify as a “counterfeit military good or service” the
good or service must “use[] a counterfeit mark on or in connection with such
good or service.” 18 U.S.C. § 2320(f )(4). In addition, the good or service must
also be either (A) falsely identified or labeled as meeting military specifications,
or (B) intended for use in a military or national security application.
To date no courts have had the opportunity to interpret the meaning of
“counterfeit military good or service” in § 2320 and there is minimal legislative
history regarding the specific language of the NDAA amendments to § 2320.
The plain language of the statutory definition, however, indicates that to
prove a violation of the “counterfeit military good or service” provision, the
government will need to show either that the defendant knew the goods (or
services) in question were falsely identified as meeting a military specification
(such as a consumer semiconductor chip that is falsely represented or labeled as
being a military grade chip), or alternatively, that the defendant intended that
the goods or services be used in a military or national security application, or at
least knew that the goods or services in which the defendants were trafficking
were intended by others (e.g., the ultimate purchasers) for use in a military or
national security application.
Issues involving counterfeit parts in the military supply chain, which
prompted the NDAA amendments, have been the subject of investigation
by several government and Congressional bodies. See, e.g., U.S. Gov’t
Accountability Office, GAO-12-375, Suspect Counterfeit Electronic Parts Can
Be Found on Internet Purchasing Platforms (2012), available at http://gao.gov/
products/GAO-12-375 and GAO-10-389; U.S. Gov’t Accountability Office,
GAO-10-389, DOD Should Leverage Ongoing Initiatives in Developing Its
Program to Mitigate Risk of Counterfeit Parts (2010), available at http://www.gao.
gov/products/GAO-10-389; U.S. Dep’t of Commerce, Defense Industrial Base
Assessment: Counterfeit Electronics (2010), available at http://www.bis.doc.gov/
defenseindustrialbaseprograms/osies/defmarketresearchrpts/final_counterfeit_
electronics_report.pdf; S. Rep. No. 112-167 (2012) (Report of the Senate
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Committee on Armed Services); The Committee’s Investigation Into Counterfeit
Electronic Parts in the Department of Defense Supply Chain: Hearing Before the
Senate Committee on Armed Services, 112th Cong. (2011), available at http://
www.gpo.gov/fdsys/pkg/CHRG-112shrg72702/pdf/CHRG-112shrg72702.
pdf.
b. “Use, Malfunction, or Failure” is Likely to Cause Specified Harms
To prove an offense under 18 U.S.C. § 2320(a)(3), the government must
also demonstrate “the use, malfunction, or failure of [the counterfeit military
good or service] is likely to cause” one of several specified harms:
1.
2.
3.
4.

serious bodily injury or death;
the disclosure of classified information;
impairment of combat operations, or;
other significant harm to a combat operation, a member of the Armed
Forces, or to national security.

Note that the government need not prove that such harms actually
occurred, or that the use or failure of a counterfeit would necessarily cause one
of the specified harms, but only that such harm would be “likely” to occur.
7. Trafficking in Counterfeit Drugs
The Food and Drug Administration Safety and Innovation Act (“FDASIA”),
Pub. L. No. 112-144, 126 Stat. 993 (2012) amended § 2320 to create a new
offense for trafficking in “counterfeit” drugs. The amendments increase the
criminal penalties for anyone who “traffics in a counterfeit drug.” 18 U.S.C.
§ 2320(a)(4).
The amendments also create a new definition for the term “counterfeit
drug”:
the term “counterfeit drug” means a drug, as defined by section
201 of the Federal Food, Drug, and Cosmetic Act, that uses a
counterfeit mark on or in connection with the drug.
18 U.S.C. § 2320(f )(6). The term “drug” is defined by reference to the
definition used in the Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. §
321(g)(1). The FDCA broadly defines the term “drug” to include any articles
recognized in official formularies or pharmacopoeia (§ 321(g)(1)(A)), any
articles intended for use to treat or prevent disease (§ 321(g)(1)(B)), or any
articles intended to affect the structure or any function of human or animal
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bodies (§ 321(g)(1)(C)), but generally does not include dietary supplements or
food (§ 321(g)(1)(C)-(D)). Note that although 21 U.S.C. § 321(g) includes
its own definition of “counterfeit drug” (see § 321(g)(2)),—the FDASIA’s
new definition of “counterfeit drug” in 18 U.S.C. § 2320(f )(6) governs cases
charged under § 2320(a)(4).
As explained previously in Section B.1. of this Chapter, with respect to the
new “counterfeit drug” offense, § 2320(a)(4), Congress failed to include the
mens rea requirement—which exists for § 2320(a)(1)-(3)—that the government
must prove that the defendant knowingly used a counterfeit mark. As of this
writing, Congress has not yet amended this provision to correct the omission.
However, in order to prove a charge under § 2320(a)(4), it is recommended
that prosecutors prove the same elements of a traditional counterfeit goods
charge under § 2320(a)(1) plus additional elements set forth in the definition
of “counterfeit drug.” A “counterfeit drug” is defined as a drug, as defined by
the FDCA in 21 U.S.C. § 321(g)(1), that “uses a counterfeit mark on or in
connection with the drug.” 18 U.S.C. § 2320(f )(6). Just as the “counterfeit
military good” offense discussed in the previous subsection, the counterfeit
drug offense can be thought of as an enhancement of the traditional § 2320(a)
(1) “counterfeit goods” charge.
8. Venue
Venue is proper in any state through which counterfeit goods travel after
the defendant obtains control over the goods. See United States v. DeFreitas,
92 F. Supp. 2d 272 (S.D.N.Y. 2000). In DeFreitas, the defendant imported
counterfeit Beanie Babies from China to New Jersey via New York for eventual
sale in New Jersey. Id. at 276. The defendant challenged his conviction under
§§ 2320 and 371 (conspiracy) on the basis of improper venue in New York,
arguing that the substantive offense under § 2320 did not begin until he
received the counterfeit goods in New Jersey. The court rejected his argument
by holding that trafficking is a continuing offense beginning with obtaining
control over the counterfeit goods, continuing with transport, and ending with
the transfer or disposal of the goods. Id. at 277. Because the offense began
when the defendant purchased the counterfeit goods in China and directed
that they be shipped to New Jersey, venue was proper at any point through
which the goods traveled after they entered the United States, including the
Southern District of New York. Id.

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C.

Defenses

Many general defenses, such as the absence of proper venue or jurisdiction,
are available in every criminal case and their application needs no further
elaboration here. The following discussion addresses defenses specific to § 2320.
1. Authorized-Use Defense: Overrun Goods
The authorized-use defense excludes from the definition of counterfeit
mark any mark that is
used in connection with goods or services[, or a mark or
designation applied to labels, patches, stickers, wrappers,
badges, emblems, medallions, charms, boxes, containers, cans,
cases, hangtags, documentation, or packaging of any type or
nature used in connection with such goods or services,] of
which the manufacturer or producer was, at the time of the
manufacture or production in question[,] authorized to use
the mark or designation for the type of goods or services so
manufactured or produced, by the holder of the right to use
such mark or designation.
18 U.S.C. § 2320(f )(1)(B). The bracketed language was inserted by the Stop
Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, § 1(b)(3),
120 Stat. 285, 287 (2006), and thus applies only to offenses arising after that
time.
The authorized-use defense applies to “overrun” goods or services, that
is, goods or services that an otherwise authorized manufacturer or producer
makes and sells on the side without the mark-holder or licensor’s knowledge or
approval. For instance, consider a trademark licensee who is authorized to make
500,000 umbrellas bearing the licensor’s trademark but who manufactures
without authorization an additional 500,000 umbrellas bearing that mark
during the course of the license. Joint Statement, 130 Cong. Rec. 31,676 (1984).
Because the trademark owner in this situation can protect himself through
“contractual and other civil remedies,” Congress felt that it was “inappropriate
to criminalize such practices.” Id. Thus, “[i]f a licensee manufactures overruns
during the course of the valid license, the marks on those goods will remain
noncounterfeit for purposes of this act.” Id.

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The overrun goods defense attaches to the overrun goods themselves, not
just to the party who produced them. This follows from § 2320(f )(1)(B)’s
specification that overrun goods are not counterfeit. Consequently, any overrun
goods that are produced and completed during the course of the license remain
noncounterfeit even after the license runs out, Joint Statement, 130 Cong.
Rec. 31,676 (1984), and the defense is available to any party who traffics in
overrun goods downstream of the manufacturer. The legislative history behind
§2320(f )(1)(B) shows Congress’ intent that the overrun goods defense be an
affirmative defense; “the burden [is] on the defendant to prove that the goods
or services in question fall within the overrun exclusion.” Joint Statement, 130
Cong. Rec. 31,676 (1984).
The overrun goods defense does not, however, allow counterfeiters to escape
criminal liability by attaching real or overrun labels to counterfeits. As discussed
in Section B.4.a. of this Chapter (citing 4 McCarthy on Trademarks and Unfair
Competition § 25:15 (4th ed. 2012) and United States v. Petrosian,126 F.3d
1232, 1234 (9th Cir. 1997)), it is standard trademark law—both civil and
criminal—that a genuine or authentic mark becomes counterfeit when it is
used in connection with something else that is counterfeit. As revised, the
authorized-use exception provides that a counterfeit mark “does not include
any mark or designation used in connection with goods or services, or a mark or
designation applied to labels, ... documentation, or packaging of any type or
nature used in connection with such goods or services, of which the manufacturer
or producer was, at the time of the manufacture or production in question,
authorized to use the mark or designation for the type of goods or services
so manufactured or produced, by the holder of the right to use such mark or
designation.” 18 U.S.C. § 2320(f )(1)(B) (emphasis added) (numbered § 2320(e)
(1) prior to Dec. 31, 2011). The 2006 amendments reworded the authorizeduse exception to retain its focus on whether the goods and services are overrun,
rather than whether the labels, documentation, or packaging themselves are
overrun. As before, the text focuses on the authorization of the manufacturer
or producer of the goods and services, not the manufacturer or producer of the
labels, documentation, or packaging. Interpreting the amendment differently
would cause a major change in trademark law, one which Congress would
have signaled in much clearer terms had the change been intended. Given
that the 2006 amendments were intended to strengthen the government’s
ability to prosecute cases concerning counterfeit labels, documentation, and
packaging, and the legislative history indicates nothing to the contrary, the
authorized-use exception should still allow the government to prosecute those
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who use or traffic in real or overrun labels, documentation, or packaging to
turn inauthentic goods into counterfeits.
The overrun defense does have a few limitations. First, “the overrun
exemption does not apply if a licensee produces a type of goods in connection
with which he or she was not authorized to use the trademark in question.”
Joint Statement, 130 Cong. Rec. 31,676-77 (1984). For example, “if a licensee
is authorized to produce ‘Zephyr’ trench coats, but without permission
manufactures ‘Zephyr’ wallets, the overrun exception would not apply.” Id. at
31,677. In this example, the licensee could be prosecuted for producing the
wallets only if the ‘Zephyr’ mark was registered for use on wallets as well as
trench coats. See also Section B.4.f. of this Chapter.
Second, the overrun goods defense is limited to goods or services for which
authorization existed “during the entire period of production or manufacture.”
United States v. Bohai Trading Co., 45 F.3d 577, 580 (1st Cir. 1995). In Bohai,
Stride Rite authorized the defendant to arrange for the manufacture of 200,000
pairs of its KEDS trademarked sneakers in China in 1987 and 1988. Id. at 578.
Stride Rite terminated the defendant’s license in the spring of 1989, after which
the defendant arranged for the Chinese factory to manufacture an additional
100,000 pairs of KEDS and to backdate the shoes as being produced in 1988.
Id. at 578-79. The defendant then imported the shoes to the United States and
sold them as genuine KEDS. Id. at 579. On appeal from its conviction, the
defendant argued that § 2320 was unconstitutionally vague because it did not
define the meaning of “production” within the authorized-use exception, and
thus the defendant could not discern whether its conduct was illegal. The First
Circuit disagreed, holding that the statute’s plain language clearly indicates that
the licensee must have a valid trademark license at all stages of manufacture
or production. Id. at 580-81. Stride Rite’s permission to assemble materials
and train Chinese factory workers in 1988 (which the defendant argued was
“production” within the meaning of § 2320) did not authorize him to apply
the KEDS trademark to shoes in 1989 after his license was terminated. Id.
The use of a licensee’s rejected irregular goods was addressed in United States
v. Farmer, 370 F.3d 435 (4th Cir. 2004). In Farmer, the defendant purchased
irregular garments without trademarks from legitimate manufacturers’
authorized factories, and had different companies sew or silk-screen on the
manufacturers’ trademarks. Id. at 437-38. On appeal, the defendant argued
that he had not “confuse[d] customers about the source of his goods” because
the garments had been manufactured to the trademark holders’ specifications
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by factories from which the trademark holders themselves purchased. Id. at
440. The Fourth Circuit disagreed, reasoning that § 2320 focuses not on the
quality of the counterfeit goods but on the counterfeit trademark attached to
those goods and the right of trademark holders to control the manufacturing
and sale of goods with their trademarks. Id. at 440-41. Although the decision
did not specifically discuss the overrun goods defense, that defense likely would
have been rejected because the garments had not been fully manufactured or
produced until the marks were placed on them by the companies the defendant
hired, which were not authorized by the trademark holders. Had the defendant
instead purchased garments from authorized factories with the trademarks
already on them, the overrun goods defense might have prevailed.
The defendant bears the burden of proving “that the goods or services in
question fall within the overrun exclusion, under both the criminal and civil
provisions” by a preponderance of the evidence. Joint Statement, 130 Cong.
Rec. 31,676 (1984).
2. Authorized-Use Defense: Gray Market Goods
“Gray market goods,” also known as “parallel imports,” are “trademarked
goods legitimately manufactured and sold overseas, and then imported into
the United States” through channels outside the trademark owner’s traditional
distribution channels. Joint Statement, 130 Cong. Rec. 31,676 (1984) (citing
Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42 (2d Cir. 1983)).
As with overrun goods, the marks on gray market goods are placed there with
the mark-holder’s authorization. What the mark-holder has not authorized is
the sale of those foreign goods within the United States.
Just as with overrun goods (discussed in Section C.1 of this Chapter), the
authorized-use defense excludes parallel imports and gray market goods from
the definition of a counterfeit mark because such a mark is “placed there with
the consent of the trademark owner.” Joint Statement, 130 Cong. Rec. 31,676
(1984). Congress carefully considered “gray market” goods and intended that
those who traffic in them not be prosecuted. Id.; S. Rep. No. 98-526, at 11
(1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3637.
Additionally, as with the overrun goods defense, the gray market goods
defense is available not just to the party who produced the goods, but also to
any party who traffics in them downstream, because § 2320(f )(1) (numbered
§ 2320(e)(1) prior to Dec. 31, 2011) declares that such goods are not
counterfeit. Although there are no reported decisions directly on point, it is
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unlikely that a court would interpret the gray market or parallel import defense
to be an affirmative defense. First, Congress drew a distinction between these
defenses in the legislative history. While the legislative history makes clear that
overrun goods are exempt from the definition of counterfeit by § 2320(f )(1)
and that the defendant bears the burden of proving the goods at issue are
overrun, Joint Statement, 130 Cong. Rec. 31,676 (1984), the Joint Statement
makes no such statement about gray market goods. Furthermore, the Joint
Statement expressly stated that the bill’s sponsors did not consider gray market
and parallel import goods to meet the definition of counterfeit marks, because
the marks were placed on the goods with the consent of the trademark owner
or a person affiliated with the trademark owner. Id.
This defense does not apply if the gray market goods were subsequently
modified or remarked in a manner that made the new mark counterfeit. See
Section C.3. of this Chapter.
3. Repackaging Genuine Goods
When the defendant’s goods themselves are genuine and bear the trademark
of the rights-holder but have been repackaged by the defendant, whether the
defendant’s repackaging is criminal depends on whether he deceived the public
or damaged the mark-owner’s good will. This rule ran through the cases, and
was written into § 2320 by the Stop Counterfeiting in Manufactured Goods
Act, Pub. L. No. 109-181, § 1, 120 Stat. 285 (2006).
United States v. Hanafy held that a defendant cannot be prosecuted under
§ 2320 for repackaging genuine goods with reproduced trademarks if the
defendant did so without deceiving or confusing others. 302 F.3d 485 (5th Cir.
2002). In Hanafy, the defendants purchased individual cans of infant formula
from various convenience stores and other sources and then repackaged the
cans into trays for resale. Id. at 486. The defendants marked the shipping trays
with reproductions of the can manufacturers’ trademarks and resold the trays to
other wholesalers. Id. Although the cans had not been packaged by the original
manufacturers for resale in this form, the defendants’ goods were genuine,
unadulterated, and were sold within the “sell by” date. Id. The district court
ruled that the unauthorized use of a reproduction of a mark in connection
with genuine goods (that is, what the mark represents the goods to be) does
not violate § 2320. Id. at 487-88. In so ruling, the court concluded that the
repackaging rule of Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69 (1924),

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which applies to actions brought under the Lanham Act, does not apply to
criminal prosecutions under § 2320. Hanafy, 302 F.3d at 488.
Affirming the district court, the Fifth Circuit held that the shipping
trays did not qualify as counterfeit under § 2320. Id. at 488-89. Although
repackaging the goods without the manufacturer’s approval or control might
violate civil trademark law, attaching a mark to trays containing the “genuine
unadulterated, unexpired products associated with that mark does not give rise
to criminal liability under section 2320.” Id. at 489. The court distinguished
Petrosian, which involved fake Coca-Cola in real Coke bottles, because the
infant formula in this case was genuine. Id. See also the discussion of Petrosian
in Section B.4.a. of this Chapter. Thus, under Hanafy, a person usually cannot
be prosecuted under § 2320 for repackaging goods with reproductions of
the original trademark if the goods themselves are genuine and in the same
condition that they would have been had the rights-holder distributed them
itself.
United States v. Milstein, 401 F.3d 53, 62-63 (2d Cir. 2005), confirmed
that a defendant can be prosecuted under § 2320 if he repackages genuine
goods to defraud consumers, such as by presenting fraudulent information.
In Milstein, the defendant obtained drugs manufactured for foreign markets
and repackaged them with false lot numbers and other markings to make the
drugs appear as if they had been approved by the FDA for sale in the United
States. 401 F.3d at 59-60. The repackaged drugs were not identical to the drugs
manufactured for U.S. markets. Id. On appeal, the defendant cited Hanafy
to argue that his repackaging did not violate § 2320. Id. at 62. The Second
Circuit distinguished Hanafy because “[w]hile the cans in Hanafy were ‘merely
being repackaged, such that consumers could be sure of the goods’ quality and
source,’ ... the drugs here were repackaged so that consumers would believe
foreign versions of the drug were in fact domestic, FDA-approved versions.” Id.
(quoting United States v. Farmer, 370 F.3d 435, 441 n.1 (4th Cir. 2004) (citing
Hanafy, 302 F.3d at 486)). The critical distinction was that Hanafy’s false
marks “contained no more information than that which was carried on the
cans themselves,” whereas “Milstein sold [drugs] in forged packaging bearing
false lot numbers.” Id. (internal quotation marks and alterations omitted). See
also United States v. Lexington Wholesale Co., 71 Fed. Appx. 507, 508 (6th Cir.
2003) (affirming restitution for a § 2320 conviction based on repackaging of
loose cans of infant formula into cases that did not accurately reflect the “use
by” date).
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In amending § 2320 in 2006, Congress essentially codified Hanafy and
Milstein in a new subsection of § 2320: “Nothing in this section shall entitle
the United States to bring a criminal cause of action under this section for the
repackaging of genuine goods or services not intended to deceive or confuse.” 18
U.S.C. § 2320(g) (previously numbered as § 2320(f )). With respect to Hanafy,
the legislative history explains that “[b]ecause the bill amends the definition of
a counterfeit trademark to include packaging and labeling formats, which can
be used lawfully by a variety of businesses, this language is intended to clarify
that repackaging activities such as combining single genuine products into gift
sets, separating combination sets of genuine goods into individual items for
resale, inserting coupons into original packaging or repackaged items, affixing
labels to track or otherwise identify genuine products, [and] removing genuine
goods from original packaging for customized retail displays are not intended
to be prosecuted as counterfeiting activities under the amended title 18 U.S.C.
§ 2320.” H.R. Rep. No. 109-68, at 8 & n.1 (2005).
Congress also intended to codify the Milstein rule to allow prosecution
of those who repackage genuine goods in a manner that defrauds consumers.
In determining whether to prosecute such a case, the government is expected
to “consider evidence tending to show an intent to deceive or confuse such as
altering, concealing, or obliterating expiration dates, or information important
to the consumer[‘s] use of the product such as safety and health information
about the quality, performance, or use of the product or service; statements
or other markings that a used, discarded, or refurbished product is new; or
statements or other markings that the product meets testing and certification
requirements.” Id. “Also relevant ... would be a meaningful variance from
product testing and certification requirements, placing seals on product
containers that have been opened and the original manufacturer’s seal has been
broken, or altering or otherwise adulterating the genuine product.” Id. at 9.
Although Hanafy and Milstein concern consumables such as food and
drugs, similar issues arise in other industries. See, e.g., Intel Corp. v. Terabyte
Int’l, Inc., 6 F.3d 614, 616, 620 (9th Cir. 1993) (holding defendants liable
for infringement for purchasing and later distributing computer chips from
a distributor who had relabeled the chips with a model number signifying a
higher processing speed); Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d
1086, 1088 (N.D. Cal. 2000) (holding defendants liable for infringement for
sale of educational versions adulterated and repackaged as full retail versions).

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Section 2320(g) does not preempt the prosecution of deceptionless
repackaging under statutes other than § 2320: “Nothing in this section shall
entitle the United States to bring a criminal cause of action under this section
for the repackaging of genuine goods or services not intended to deceive or
confuse.” 18 U.S.C. § 2320(g) (emphasis added). For instance, repackaging
cases that involve consumer products such as food, drugs, medical devices,
cosmetics, and other items designed for consumers to use in the household,
might be prosecuted under the product tampering statute, 18 U.S.C. § 1365,
which addresses tampering with labels and communicating false information
that a consumer product was tainted, or under the Food, Drug, and Cosmetic
Act, 21 U.S.C. §§ 331(a), 333, 343, 352, 362, which punishes trafficking in
misbranded food, drugs and cosmetics. See Section F. of this Chapter.
4. Lanham Act Defenses
The Lanham Act’s civil defenses have been incorporated as defenses against
criminal charges brought under § 2320 to the extent applicable. “All defenses,
affirmative defenses, and limitations on remedies that would be applicable in an
action under the Lanham Act [for trademark infringement] shall be applicable
in a prosecution under this section.” 18 U.S.C. § 2320(d) (previously numbered
§ 2320(c) prior to Dec. 31, 2011); see also Joint Statement, 130 Cong. Rec.
31,675 (1984)( “only those defenses, affirmative defenses, and limitations on
relief [in the Lanham Act] that are relevant under the circumstances will be
applicable”). In addition, “any affirmative defense under the Lanham Act will
remain an affirmative defense under this [section], which a defendant must
prove by a preponderance of the evidence.” Id.
Statutory defenses under the Lanham Act primarily address the
incontestability of a mark once it has been registered for five years. 15 U.S.C.
§ 1115(b). The defenses to incontestability include: 1) fraud by the markholder in obtaining the registration; 2) abandonment of the mark by its owner;
3) the registered mark’s use by or with the registrant to misrepresent the source
of the goods or services on or in connection with which the mark is used; 4)
use of the name, term, or device charged to be an infringement is a use of
the defendant’s individual name in his own business, or of someone in privity
with that party, or a term that is used in good faith to describe the goods or
services of such party or their geographic origin; 5) innocent and continuous
prior use of the mark without registration by the defendant; 6) the defendant’s
innocent prior use of the mark with registration; 7) use by the mark-holder of
a trademark in violation of the antitrust laws; 8) the mark is functional; and
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9) equitable defenses, such as laches, estoppel, and acquiescence. Id. Other
Lanham Act defenses or limitations mentioned prominently in the legislative
history are those limitations on actions against printers and newspapers in 15
U.S.C. § 1114(2). For instance, the owner of an infringed mark is limited
to an injunction against future printing under 15 U.S.C. § 1125(a). See 15
U.S.C. § 1114(2)(A); Joint Statement, 130 Cong. Rec. 31,675 (1984). For an
extensive discussion of these defenses, see David J. Goldstone & Peter J. Toren,
The Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1, 43-65
(1998).
The applicability of the Lanham Act’s statute of limitations (or lack thereof )
is discussed in Section C.5. of this Chapter.
Civil cases decided under the Lanham Act may prove instructive when
applying the Lanham Act defenses in criminal cases, but those defenses should
not be applied mechanically in a criminal case. For example, although an
“unclean hands” defense may deny relief to a plaintiff mark-holder in a civil
case, 15 U.S.C. § 1115(b)(3), (9); 37 C.F.R. § 2.114(b)(1) (2012), the markholder’s unclean hands are less relevant in a criminal case. This is because the
mark-holder is not a party and the prosecutors act in the public’s interest rather
than exclusively the mark-holder’s interest. Thus, application of this Lanham
Act defense in a criminal case might not serve the public interest.
At this writing, few criminal cases address the Lanham Act defenses. See,
e.g., United States v. Milstein, 401 F.3d 53, 63-64 (2d Cir. 2005) (holding
laches defense unavailable in § 2320 prosecutions); United States v. Sung, 51
F.3d 92, 94 (7th Cir. 1995) (discussing how 15 U.S.C. § 1111’s limitations
on remedies in civil cases applies to criminal cases); United States v. Sheng, No.
92-10631, 1994 WL 198626 (9th Cir. 1994) (affirming denial of defendant’s
motion for discovery concerning antitrust defense, due to defendant’s failure
to make a prima facie case for discovery); United States v. Shinyder, No. 887236, 1989 WL 126528 (4th Cir. 1989) (per curiam) (holding that defendant
failed to demonstrate ineffective assistance of counsel because defendant gave
his attorney no information regarding purported invalidity of victim’s mark
due to its prior use by defendant); United States v. Almany, 872 F.2d 924 (9th
Cir. 1989) (appeal based on evidentiary issues related to Lanham Act defenses).
5. Statute of Limitations
Under 18 U.S.C. § 3282(a), the statute of limitations for almost all noncapital federal crimes is five years unless otherwise expressly provided by law.
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Because § 2320 does not specify a limitations period itself, violations of § 2320
are subject to the general five-year limitations period. See United States v. Foote,
413 F.3d 1240, 1247 (10th Cir. 2005); United States v. Milstein, No. CR 96899 (RJD), 2000 WL 516784, at *1 (E.D.N.Y. 2000).
Defendants, however, sometimes seek a shorter statute of limitations by
arguing that the courts should apply the limitations period applicable to civil
trademark violations. In Foote, for instance, the defendant argued that the
statute of limitations should be determined by state law because § 2320(d)
incorporates “[a]ll defenses, affirmative defenses, and limitations on remedies
that would be applicable under the Lanham Act,” and courts apply state
statutes of limitations to Lanham Act cases since the federal civil statute does
not contain an express limitation period. Foote, 413 F.3d at 1247. The Tenth
Circuit disagreed, holding that the lack of an “express statute of limitations
in either the Counterfeit Trademark Act or the Lanham Act” means that the
general criminal limitations period in § 3282(a) applies. Id.; see also United
States v. Foote, 238 F. Supp. 2d 1271, 1276-77 (D. Kan. 2002) (containing an
extended policy discussion of this issue).
6. Vagueness Challenges
Courts have rejected challenges to § 2320 under the Fifth Amendment on
vagueness grounds. A statute can be struck down as unconstitutionally vague if
it either (1) fails to provide the kind of notice that will enable ordinary people to
understand what conduct it prohibits, or (2) authorizes or encourages arbitrary
and discriminatory enforcement. City of Chicago v. Morales, 527 U.S. 41, 56
(1999). Federal courts have uniformly rejected challenges to various terms
within § 2320 as unconstitutionally vague. E.g., United States v. McEvoy, 820
F.2d 1170 (11th Cir. 1987) (rejecting claim that the Trademark Counterfeiting
Act, 18 U.S.C. § 2320, is unconstitutionally vague on its face); United States v.
Lam, 677 F.3d 190, 201-03 (4th Cir. 2012) (rejecting vagueness claim based
on § 2320’s use of the phrase “substantially indistinguishable”); United States v.
Bohai Trading Co., 45 F.3d 577 (1st Cir. 1995) (rejecting vagueness claim based
on § 2320’s use of the phrase “at the time of the manufacture or production”
in its “authorized-use” exception); United States v. Hon, 904 F.2d 803 (2d Cir.
1990) (rejecting claim that § 2320 is unconstitutionally vague as applied to
“likelihood of confusion” jury charge); United States v. Diallo, 476 F. Supp. 2d
497 (W.D. Pa. 2007) (rejecting vagueness claim based on Congress’ decision
not to define the term “use” in § 2320), aff’d, 575 F.3d 252 (3d Cir.), cert.
denied, 130 S. Ct. 813 (2009).
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D.

Special Issues
1. High-Quality and Low-Quality Counterfeits

Defense counsel often argue that it is inappropriate to charge a § 2320
offense if the counterfeit goods are of very low or, conversely, very high
quality, arguing that nobody is fooled by low-quality counterfeits and that
nobody is harmed or deceived by high-quality counterfeits. Both arguments
are misguided. See, e.g., United States v. Farmer, 370 F.3d 435 (4th Cir. 2004)
(affirming conviction under § 2320 for irregular garments purchased from
factories that manufactured garments to trademark holder’s specifications);
United States v. Gonzalez, 630 F. Supp. 894, 896 (S.D. Fla.1986) (denying
motion to dismiss § 2320 indictment because the counterfeits’ low price did
not preclude finding that they could cause confusion, mistake or deception).
The government’s response lies in the plain language of the statute.
Subsections 2320(a) and (f ) focus on whether the counterfeit mark is likely
to cause confusion, cause mistake, or to deceive and make no mention of
the counterfeit item’s quality. See United States v. Foote, 413 F.3d 1240, 1246
(10th Cir. 2005) (“[T]he correct test is whether the defendant’s use of the
mark was likely to cause confusion, mistake or deception in the public in
general.”). As discussed in Section B.4.g. of this Chapter, § 2320 was “not
just designed for the protection of consumers,” but also for “the protection of
trademarks themselves and for the prevention of the cheapening and dilution
of the genuine product.” United States v. Hon, 904 F.2d 803, 806 (2d Cir.
1990) (internal quotation marks and citations omitted). In this vein, “[o]ne
of the rights that a trademark confers upon its owner is the ‘right to control
the quality of the goods manufactured and sold’ under that trademark. For this
purpose the actual quality of the goods is irrelevant; it is the control of quality that
a trademark holder is entitled to maintain.” Farmer, 370 F.3d at 441 (internal
quotation marks and citations omitted) (emphasis added). “When courts find
that selling an item at an excessively cheap price precludes a finding that such
an item is ‘counterfeit’ under 18 U.S.C. § 2320[] in that the use of the goods
is not likely to cause confusion, to cause mistake, or to deceive, they are, in
effect, thwarting the purposes behind such legislation.” Gonzalez, 630 F. Supp.
at 896; United States v. Torkington, 812 F.2d 1347, 1350 n.3 (11th Cir. 1987)
(holding that Gonzalez “adopted essentially the same interpretation that we do
here”).

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Because both high-quality and low-quality counterfeit goods affect the
intellectual property rights of the trademark holder, a § 2320 charge can be
appropriate in either circumstance. See also Section B.4.g. of this Chapter.
2. Counterfeit Goods with Genuine Trademarks
Although the definition of “counterfeit mark” in § 2320(f ) indicates that
the mark itself must be counterfeit, not the good to which it is attached, a
genuine or authentic mark becomes counterfeit when it is applied to counterfeit
goods. See the discussion of United States v. Petrosian, 126 F.3d 1232 (9th Cir.
1997), in Section B.4.a. of this Chapter.
Genuine trademarks can also become counterfeit when they are applied to
genuine product in a manner that misrepresents the genuine product’s quality.
See Section C.3. of this Chapter.
3. Selling Fakes While Admitting That They Are Fakes
Defendants who disclose to consumers that their merchandise is counterfeit
may not argue successfully that no criminal liability should attach because
their customers were not deceived into thinking they were purchasing genuine
goods. See Section B.4.g. of this Chapter.
4. Selling Another’s Trademarked Goods As One’s Own (Reverse
Passing-Off)
Agents sometimes inquire whether a target can be prosecuted for criminal
trademark infringement if he sells another’s goods as his own under his own
trademark, such as selling stolen Marlboro cigarettes as his own Acme brand
cigarettes. This conduct, called “reverse passing-off,” is civilly actionable under
the Lanham Act. See, e.g., Dastar Corp. v. 20th Century Fox Film Corp., 539
U.S. 23, 32-37 (2003); Web Printing Controls Co. v. Oxy-Dry Corp., 906 F.2d
1202 (7th Cir. 1990); Arrow United Indus., Inc. v. Hugh Richards, Inc., 678
F.2d 410, 416 (2d Cir. 1982); Smith v. Montoro, 648 F.2d 602, 606 & n.5 (9th
Cir. 1981). Reverse passing-off is not a crime under § 2320, however, because
it does not involve the use of a counterfeit mark as defined in § 2320(f ). In the
example above, the defendant’s own Acme mark would be, in fact, a genuine
mark.

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5. Mark-Holder’s Failure to Use

® Symbol

The trademark code requires the holder of a federally registered mark
to give others notice of registration by displaying the mark with the words
“Registered in U.S. Patent and Trademark Office,” “Re. U.S. Pat. & Tm. Off.,”
or the familiar ® symbol. Without this notice next to its mark on its goods
and services, the mark-holder cannot recover its profits or damages against an
infringer unless the infringer had actual notice of the registration. 15 U.S.C.
§ 1111. The commonly-seen TM and SM symbols do not give notice of federal
registration; they can be used with unregistered marks. 3 J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition § 19:148 (4th ed. 2012).
The victim’s intentional or inadvertent failure to use the statutory means of
notice mentioned above does not preclude the defendant’s prosecution under
§ 2320. United States v. Sung, 51 F.3d 92, 93-94 (7th Cir. 1995). Section
2320 criminalizes counterfeiting “whether or not the defendant knew [the
victim’s] mark was so registered.” 18 U.S.C. § 2320(f )(1)(A)(ii); Sung, 51 F.3d
at 93-94. Moreover, the notice provisions in 15 U.S.C. § 1111 do not create a
defense that excuses infringement, but rather they only limit the mark-holder’s
remedies. Sung, 51 F.3d at 94; see also 3 McCarthy on Trademarks and Unfair
Competition § 19:144 (“Failure to use the statutory symbol does not create
a defense: it is merely a limitation on remedies.”) (footnote omitted). For a
discussion of how these remedies are limited in criminal cases, see Section E.3.
of this Chapter.
6. Storage Costs and Destruction
Unlike many other intellectual property crimes, criminal trademark
infringement frequently generates a substantial quantity of physical evidence.
Although large intellectual property seizures can be a problem to store, storage
is the safest option. (Chapter X of this Manual discusses whether victims may
assist with storage.) If storage is not feasible, part of the evidence probably can
be destroyed after a hearing if the seized property is counterfeit. Destruction
of the evidence, however, carries its own complications with respect to making
evidence available for defendants and jurors to inspect and employing sound
procedures for taking representative samples.
The decision to allege all or only a part of the seized intellectual property
in the indictment and at trial must be made on a case-by-case basis. In most
cases, it should be possible either to indict for all seized goods and present
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evidence of a representative sample to prove the whole at trial, or to indict
and present evidence of only some of the goods, using evidence of the full
quantity as relevant conduct only at sentencing. (Chapter VIII’s discussion
of determining the infringement amount considers the justification for and
methods of estimation.) Charging a subset for trial and proving the remainder
at sentencing may also have some tactical advantages, such as streamlining the
trial and deferring loss calculations to the sentencing phase.
Because these issues can become quite complex, prosecutors should
consider them early on, even before the search is conducted. If the prosecutor
wants all the evidence to be available for trial, it is important to coordinate
with the seizing agency to ensure that any forfeited material is not destroyed
or is at least destroyed only after a sound procedure for taking representative
samples is completed. (Of course, destruction is not permissible until the items
have been forfeited.)
Prosecutors can discuss these issues with the Computer Crime and
Intellectual Property Section at (202) 514-1026.
7. Units of Prosecution
Because a defendant often traffics in numerous counterfeit trademarks,
drafting an indictment that reflects the defendant’s actions is not always easy.
The United States Department of Justice’s Criminal Resource Manual 215,
available at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/
title9/crm00215.htm, advises that “all United States Attorneys should charge
in indictments and informations as few separate counts as are reasonably
necessary to prosecute fully and successfully and to provide for a fair sentence
on conviction”; it also generally recommends charging no more than fifteen
counts. But trademark counterfeiters of any significant size will often have
infringed numerous trademarks in numerous transactions.
The charging determination in a trademark counterfeiting case, as in
other criminal cases, is subject to the rule of reason, and generally the best
approach is to organize charges around specific courses of conduct in order
to keep the case as straightforward as possible for the jury. Counts may be
organized by the mark infringed; the identity of the mark-holder; or the date
upon which the infringing goods were obtained, manufactured, distributed, or
seized. Indictments charging counterfeiting schemes can be unified through a
conspiracy count.
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If the defendant infringed only one trademark, the defendant can be charged
with a single count. Separate sales of goods bearing the same counterfeit mark,
however, have sometimes been charged in separate counts. See, e.g., United
States v. Gantos, 817 F.2d 41, 42 (8th Cir. 1987) (defendant charged and
convicted on four counts, each for separate sales of counterfeit Rolex watches).
If the defendant counterfeited multiple marks, the indictment may also
contain separate counts for each separate genuine mark. For example, in
United States v. Song, 934 F.2d 105 (7th Cir. 1991), the court upheld the
defendant’s conviction on five separate counts “because she was trafficking in
goods bearing five different counterfeit marks.” Id. at 109. The court relied on
the plain language of § 2320, which punishes someone who “‘intentionally
traffics or attempts to traffic in goods or services and knowingly uses a counterfeit
mark’ on such goods or services.” Id. at 108 (quoting the then-current version
of 18 U.S.C. § 2320(a)) (emphasis in original) (footnote omitted).
The courts have not yet addressed several charging issues that will continue
to arise in trademark prosecutions:
•

•

•

144

Whether a single sale of multiple items that infringe multiple trademarks
may be charged in a single counterfeiting count. The issue is whether
such a charge would be duplicitous—i.e., charging two or more distinct
offenses in a single count—or rather just an allegation that multiple
means were used to commit a single offense. Prosecutors who confront
this issue should consult the Department’s manual, Office of Legal
Education, U.S. Dep’t of Justice, Federal Grand Jury Practice § 11.30
(2008) (concerning duplicitous indictments), available at http://
dojnet.doj.gov/usao/eousa/ole/usabook/gjma/11gjma.htm#11.30.
How multiple counterfeit trademarks on a single good should be
charged in a criminal indictment: as one count, using the counterfeit
good as the unit of prosecution, or as multiple counts, using each mark
as a unit of prosecution.
Whether a defendant who traffics in a counterfeit good wrapped in
counterfeit packaging may be charged in one count that covers both the
good and packaging and/or whether charging the good and packaging
separately in multiple counts is necessary or permissible, now that
§ 2320 (as amended 2006) criminalizes trafficking in counterfeit
labels, documentation, and packaging in addition to counterfeit goods
and services.
Prosecuting Intellectual Property Crimes

8. Olympic Symbols
The definition of “counterfeit mark” in § 2320(f )(1)(B) includes
designations protected by the Olympic Charter Act, such as the five
interlocking rings of the Olympic games. See also 36 U.S.C. § 220506(a)(2)
(giving the United States Olympic Committee exclusive rights to the symbol of
the International Olympic Committee, consisting of 5 interlocking rings, the
symbol of the International Paralympic Committee, consisting of 3 TaiGeuks,
and the symbol of the Pan-American Sports Organization, consisting of a torch
surrounded by concentric rings).
Some of the rules that apply to prosecutions involving other marks do not
apply to cases involving the Olympic symbols:
•

•
•

•

The mark need not have been registered on the principal register in
the USPTO. Section 2320(f )(1)(A)’s registration requirements do not
apply to cases dealing with criminal trademark infringement of Olympic
symbols. Compare 18 U.S.C. § 2320(f )(1)(A)(ii) with § 2320(f )(1)(B);
see also 36 U.S.C. § 220506; Joint Statement, 130 Cong. Rec. 31,675
(1984) (explicitly exempting cases involving Olympic symbols from
the registration requirement). See also the discussion of registration in
Section B.4.c. of this Chapter.
Section 2320(f )(1)(A)(ii)’s use requirement does not apply to cases
involving protected Olympic symbols. See also the discussion of use in
Section B.4.d. of this Chapter.
The requirement that the defendant have used the counterfeit mark
in connection with the goods or services for which the mark had
been registered does not apply to cases involving protected Olympic
symbols. See also Section B.4.f. of this Chapter.
In cases involving protected Olympic symbols, the mark is counterfeit
under 18 U.S.C. § 2320(f )(1)(B) if the defendant’s counterfeit symbols
are “identical with, or substantially indistinguishable” from the genuine
symbols. No further proof of likely confusion, mistake, or deception is
required. See also Section B.4.g. of this Chapter.

The other rules discussed in this Chapter apply equally to cases involving
Olympic symbols.

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E.

Penalties
1. Fines and Imprisonment

For violations of § 2320(a)(1) (goods or services) or (a)(2) (labels, etc.), the
maximum penalty for a first offense is up to 10 years imprisonment and a $2
million fine for an individual defendant and up to $5 million for organizational
defendants. 18 U.S.C. § 2320(b)(1)(A). Subsequent offenses are subject to
penalties of up to 20 years imprisonment and a $5 million fine for an individual
defendant and up to $15 million for organizational defendants. Id. § 2320(b)
(1)(B).
For violations of § 2320(a)(3) and (a)(4), involving counterfeit military
goods or services and counterfeit drugs, respectively, the maximum penalty
is imprisonment up to 20 years and a fine of up to $5 million for individuals
and up to $15 million for organizational defendants. Id. § 2320(b)(3)(A).
Subsequent offenses are subject to up to 30 years imprisonment and a $15
million fine for individuals and up to $30 million fine for organizational
defendants. Id. § 2320(b)(3)(B).
If a defendant knowingly or recklessly causes or attempts to cause serious
bodily harm or death by any of the offenses listed in subsection 2320(a),
enhanced penalties may be available under § 2320(b)(2). In the case of serious
bodily injury the statutory penalty is up to 20 years’ imprisonment and a $5
million fine for an individual and up to $15 million for an organizational
defendant. The fines are the same in the case of death, however, an individual
is subject to life imprisonment. Id. § 2320(b)(2)(A), (B).
A challenge to incarceration, probation, and supervised release, on the
ground that these remedies are not present in the civil Lanham Act, was rejected
in United States v. Foote, No. CR.A. 00-20091-01-KHV, 2003 WL 22466158,
at *2-3 (D. Kan. July 31, 2003), aff’d in part on other grounds, 413 F.3d 1240
(10th Cir. 2005).
2. Restitution
The 2006 amendments to § 2320 expressly provided for restitution to
victims of trademark counterfeiting. The amendments codified the prior
practice in which restitution was awarded under 18 U.S.C. § 3663A(c)(1)
(A)(ii), which provides mandatory restitution to victims of crimes against
property in Title 18, and under Section 5E1.1 of the Sentencing Guidelines,
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which provides restitution when there is an identifiable victim and restitution
is authorized under 18 U.S.C. § 3663A. See, e.g., United States v. Lexington,
71 Fed. Appx. 507, 508 (6th Cir. 2003) (affirming contested restitution order
under 18 U.S.C. § 3663 and U.S.S.G. § 5E1.1 following a § 2320 conviction);
United States v. Hanna, No. 02 CR.1364-01 (RWS), 2003 WL 22705133, at
*3 (S.D.N.Y. Nov. 17, 2003) (including restitution in sentence for § 2320
conviction). See also Chapter VIII of this Manual.
The 2008 PRO-IP Act revised § 2320’s restitution provision to refer to 18
U.S.C. § 2323, the general forfeiture and restitution provision for IP offenses
also created by the PRO-IP Act. Section 2323(c), provides that “[w]hen a
person is convicted of an offense under [§ 2320, inter alia], the court, pursuant
to sections 3556, 3663A, and 3664 of [title 18], shall order the person to pay
restitution to any victim of the offense as an offense against property referred
to in section 3663A(c)(1)(A)(ii).” 18 U.S.C. § 2320(c). This provision does
not mean that restitution will be proper in every § 2320 case, but rather that
restitution shall be ordered under 18 U.S.C. § 3663A(c)(1)(A)(ii) if there is a
victim who was harmed in a manner that would entitle him to restitution as
the victim of a property crime.
Before the 2008 amendments, § 2320 expressly defined the term “victim”
as having “the meaning given that term in section 3663A(a)(2),” that is, “a
person directly and proximately harmed as a result of the commission of an
offense for which restitution may be ordered.” See § 2320(b)(5) (2008). That
express reference to § 3663A(a)(2) was removed when the specific restitution
language in § 2320 was replaced with a reference to the IP forfeiture and
restitution provision in § 2323 by the PRO-IP Act in 2008. Although § 2323
does not define the term “victim,” there is no language in the PRO-IP Act or
its legislative history to indicate that Congress intended these amendments to
alter the definition of “victim” for § 2320 purposes, or to refer to any definition
other than that provided in § 3663A(a)(2). Even under that definition, however,
there remains some question whether a mark-holder qualifies for restitution
if the defendant’s conduct did not diminish the mark-holder’s sales. See also
Chapter VIII of this Manual.
The restitution amount should be determined by calculating only “the
actual amount [of infringing goods] placed into commerce and sold.” United
States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006). Although infringing
items intended to be sold (but not actually sold) may be included in valuing
loss for sentencing purposes, such goods should not be included in calculating
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147

restitution. Id. at 107-108. Furthermore, since the purpose of restitution is
to compensate victims for actual losses, restitution should be based on the
legitimate seller’s gross, rather than net, lost profits. Id. at 108.
In § 2320 cases, the victim’s right to restitution may be subject to an
important qualification: the Lanham Act’s limitation on remedies in 15
U.S.C. § 1111. In civil cases, 15 U.S.C. § 1111 prohibits a plaintiff from
recovering monetary damages from a defendant who lacked actual notice
that the plaintiff’s mark was registered. One court has ruled that 15 U.S.C.
§ 1111 limits restitution in a § 2320 prosecution because § 2320 incorporates
civil Lanham Act defenses. United States v. Sung, 51 F.3d 92, 94 (7th Cir.
1995) (“[R]estitution in a criminal case is the counterpart to damages in civil
litigation,” and thus “restitution payable to the trademark owner is proper only
if the goods contained the proper notice or the infringer had actual knowledge
of the registration.”). In Sung, the Seventh Circuit held that specific findings
on these points—proper notice or actual knowledge of the registration—must
be made by the sentencing court on the record before ordering restitution. Id.
See the discussion of what constitutes proper notice in Section D.5. of this
Chapter. For cases addressing how to prove notice or the defendant’s actual
knowledge of registration, see United Servs. Auto. Ass’n v. Nat’l Car Rental Sys.
Inc., No. Civ. A.SA00CA1370G, 2001 WL 1910543, at *4 (W.D. Tex. Sept.
26, 2001) (holding that “actual notice requirement is met when a party receives
information portraying a registered trademark bearing a ® symbol,” including
a letter asking the defendant to cease and desist); Schweitzz Dist. Co. v. P & K
Trading Inc., No. 93 CV 4785, 1998 WL 472505, at *5 (E.D.N.Y. July 16,
1998) (holding that defendant’s testimony that it was aware of plaintiff’s use of
the ® symbol on the open market sufficed to prove notice).
Even if other courts follow the Seventh Circuit’s holding in Sung, two points
are worth noting. First, the defendant’s knowledge or notice of the registration
is not a defense to a criminal conviction; it is only a limitation on remedies.
See Sung, 51 F.3d at 93-94. See also Section D.5. of this Chapter. Second,
the rule should not limit restitution to any consumers whom the defendant
defrauded. Sung’s holding was stated only in terms of restitution to the markholder, and its rationale should not be extended to consumers who have no
say in whether the mark-holder gave the defendant notice. See Sung, 51 F.3d
at 94 (noting that “as a form of money damages, restitution [is] payable to the
trademark owner”) (emphasis added); cf. United States v. Foote, 413 F.3d 1240,
1252 (10th Cir. 2005) (holding Sung inapplicable to criminal fines because
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“[t]he court’s conclusion in Sung was based on its reasoning that restitution is
a form of money damages payable to the trademark owner. Unlike restitution
[to the trademark owner], fines are a form of criminal punishment rather
than a form of damages, and are payable to the government rather than to the
trademark owner.”) (citation omitted).
For a more in-depth discussion of restitution in intellectual property
crimes, such as whether a trademark-holder can be awarded restitution even
if the defendant did not cost the trademark-holder any sales, see Chapter VIII
of this Manual.
3. Forfeiture
Forfeiture is covered in Chapter VIII of this Manual.
4. Sentencing Guidelines
The applicable sentencing guideline is U.S. Sentencing Guidelines Manual
§ 2B5.3. It is covered in Chapter VIII of this Manual.
Historically, one of the most difficult issues in sentencing § 2320 offenses
concerned how to compute the infringement amount of goods in the defendant’s
possession to which he had not yet applied a counterfeit mark. In cases where
the defendant had not completed applying the counterfeit mark to the goods at
issue (such as in cases of attempt or aiding-and-abetting where the defendants
produced counterfeit labels or packaging), courts held that the government was
required to establish with a “reasonable certainty” that the defendant intended
to complete and traffic in those goods. United States v. Guerra, 293 F.3d 1279,
1293-94 (11th Cir. 2002) (“There is no support for the proposition that the
number of ‘infringing items’ may be based on the number of seized articles
that have the mere potential of ultimately forming a component of a finished
counterfeit article, without a determination as to the extent to which defendants
had a reasonable likelihood of actually completing the goods.”); United States v.
Sung, 51 F.3d 92, 94-96 (7th Cir. 1995) (remanding for resentencing because
the district court did not find with reasonable certainty that Sung intended to
sell 240,000 counterfeit shampoo bottles where the only evidence of intent
was the possession of counterfeit trademarked shipping cartons that could hold
240,000 bottles, and defendant had liquid to fill only 17,600 bottles). Further,
if the counterfeit label was not attached to the good, the counterfeit item’s
value might have been determined by whether the counterfeit label itself has
a market value separate from the value of the infringing item for which it was
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intended. Compare United States v. Bao, 189 F.3d 860, 866-67 (9th Cir. 1999)
(holding that the most appropriate retail value to use in sentencing under 18
U.S.C. § 2318 for trafficking in counterfeit computer software manuals was
that of the genuine computer manual, not the total software package) with
Guerra, 293 F.3d at 1292 (distinguishing Bao in § 2320 conviction because the
cigar labels had no retail value apart from being attached to the cigars).
In response to the 2006 amendments, which expressly addressed counterfeit
labeling components, the Sentencing Commission amended the Application
Notes to § 2B5.3 to provide that the retail value of the infringed item should
be used to determine the infringement amount when the case involves:
a counterfeit label, patch, sticker, wrapper, badge, emblem,
medallion, charm, box, container, can, case, hangtag,
documentation, or packaging of any type or nature (I) that has
not been affixed to, or does not enclose or accompany a good
or service; and (II) which, had it been so used, would appear to
a reasonably informed purchaser to be affixed to, enclosing, or
accompanying an identifiable, genuine good or service. In such
a case, the “infringed item” is the identifiable, genuine good or
service.
United States Sentencing Guidelines § 2B5.3 cmt. n.2(A)(vii) (2012) (as
amended by Amendment 682, effective September 12, 2006).
On April 10, 2013, the Sentencing Commission promulgated new
Guidelines amendments to address the counterfeit military good or service
offense in § 2320(a)(3) that was created by the NDAA for FY2012 (enacted
Dec. 31, 2011), and the counterfeit drug offense in § 2320(a)(4) that was
created by the FDASIA (enacted July 9, 2012). Under these amendments,
both types of offenses will generally be subject to a 2-level enhancement, and
counterfeit military goods offenses will also be subject to a minimum offense
level of 14. Application of these new Guidelines provisions is discussed further
in Chapter VIII of this Manual.

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F.

Other Charges to Consider

When confronted with a case that implicates counterfeit trademarks,
service marks, or certification marks, prosecutors may consider the following
crimes in addition to or in lieu of § 2320 charges if § 2320’s elements cannot
be met:
•

Conspiracy and aiding-and-abetting, 18 U.S.C. §§ 2, 371
Consider these charges if the defendant only supplied
counterfeit labels or packaging that were attached by another
person. See Section B.3.c. of this Chapter.

•

Mail and wire fraud, 18 U.S.C. §§ 1341, 1343
These charges can be filed if the defendant used the mail (or
other interstate carrier) or wires (including the Internet) in
a scheme to defraud purchasers, whether direct or indirect
purchasers. Mail and wire fraud may be especially appropriate
when there are foreign victims and domestic jurisdiction under
§ 2320 is difficult to establish. See Pasquantino v. United States,
544 U.S. 349, 125 S. Ct. 1766 (2005) (affirming wire fraud
conviction where victim was the Canadian government);
United States v. Trapilo, 130 F.3d 547, 552 (2d Cir. 1997) (“The
[wire fraud] statute reaches any scheme to defraud involving
money or property, whether the scheme seeks to undermine
a sovereign’s right to impose taxes, or involves foreign victims
and governments.”) (emphasis in original) (citations omitted).
Mail and wire fraud charges may be available if the defendant
told his direct purchasers that his goods were counterfeit, so
long as he and his direct purchasers intended to defraud the
direct purchasers’ customers. If, however, all the participants
intended that the goods be sold to the ultimate customers as
admitted “replicas,” then mail and wire fraud charges will likely
be unavailable.

•

Copyright infringement, 17 U.S.C. § 506, 18 U.S.C. § 2319
Consider these charges if the underlying goods are not only
trademarked or service marked, but also contain copyrighted

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contents, such as books, movies, music, or software. See
Chapter II of this Manual.
•

Trafficking in counterfeit labels, illicit labels, or counterfeit
documentation or packaging, 18 U.S.C. § 2318
Consider charging § 2318 if the labels, documentation, or
packaging were intended to be used with copyrighted works.
See Chapter VI of this Manual.

•

Trafficking in misbranded food, drugs and cosmetics
See Food, Drug, and Cosmetic Act and Title 21 provisions,
including 21 U.S.C. §§ 331(a) (prohibitions on misbranding),
333 (criminal penalties), 343 (misbranded food), 352
(misbranded drugs and devices), 362 (misbranded cosmetics)
and 841(a)(2) (prohibiting distribution of counterfeit
controlled substances).

•

Tampering with consumer products, 18 U.S.C. § 1365
Tampering with labels and communicating false information
that a consumer product has been tainted.

•

Trafficking in mislabeled wool, fur and textile fiber products
Title 15 U.S.C. §§ 68a, 68h (prohibiting commercial dealing in
misbranded wool products), 69a, 69i (prohibiting commercial
dealing in misbranded fur products), 70a, 70i (prohibiting
commercial dealing in misbranded textile fiber products).

•

Racketeer Influenced and Corrupt Organizations (RICO),
18 U.S.C. §§ 1961-1968
Consider RICO if the intellectual property crimes are
committed by organizations. Counterfeit labeling, 18 U.S.C.
§ 2318; criminal copyright infringement, 18 U.S.C. § 2319;
trafficking in recordings of live musical performances, 18
U.S.C. § 2319A; and trademark counterfeiting, 18 U.S.C.
§ 2320, are all predicate offenses for a racketeering charge
under 18 U.S.C. § 1961(1)(B). A RICO charge requires prior
approval from the Organized Crime and Gang Section of the
Criminal Division (OCGS). See United States Attorneys’ Manual

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(USAM) 9-110.101, 9-110.320. To contact OCGS, call (202)
514-3594.
•

Money laundering, 18 U.S.C. §§ 1956, 1957
Section 2320 is a predicate offense for a money laundering
charge. 18 U.S.C. § 1956(c)(7)(D). See, e.g., United States v.
Bohai Trading Co., 45 F.3d 577, 579 (1st Cir. 1995) (charging
§ 2320 and § 1957 offenses).

Those seeking additional information on enforcing criminal provisions
of the Food, Drug, and Cosmetic Act designed to protect consumers should
contact the Justice Department’s Consumer Protection Branch at (202) 6160295.
Congress has also provided civil remedies for violations of its prohibitions
on misbranded goods and has established agencies to enforce those laws, such
as the Federal Trade Commission and the Food and Drug Administration.
Cases appropriate for civil enforcement may be referred to the appropriate
agency. The Federal Trade Commission’s Marketing Practices Division, which
is part of the Consumer Protection Bureau, may be reached at (202) 3262412. The Federal Trade Commission’s website is www.ftc.gov, and their
general information telephone number is (202) 326-2222. The Food and
Drug Administration’s website is www.fda.gov, and they may be reached by
telephone at 1-888-INFO-FDA (1-888-463-6332).

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IV.
Theft of Commercial
Trade Secrets—
18 U.S.C. §§ 1831-1839
A.

Introduction

“A trade secret is really just a piece of information (such as a customer list,
or a method of production, or a secret formula for a soft drink) that the holder
tries to keep secret by executing confidentiality agreements with employees
and others and by hiding the information from outsiders by means of fences,
safes, encryption, and other means of concealment, so that the only way the
secret can be unmasked is by a breach of contract or a tort.” ConFold Pac.,
Inc. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (Posner, J.) (citations
omitted). Or, as Judge Posner could have pointed out, it can also be unmasked
by a criminal act.
Congress expressly criminalized the theft of trade secrets with passage
of the Economic Espionage Act of 1996, Pub. L. No. 104-294, 110 Stat.
3489 (1996) (codified at 18 U.S.C. §§ 1831-1839) (EEA). Prior to the EEA,
criminal liability for the theft of trade secrets was available indirectly in limited
situations: 18 U.S.C. § 1905 for the unauthorized disclosure of government
information, including trade secrets, by a government employee; 18 U.S.C.
§ 2314 for the interstate transportation of stolen property, including trade
secrets; and 18 U.S.C. §§ 1341, 1343, and 1346 for the use of mail or wire
communications in a fraud scheme to obtain confidential business information
in. See Section G. of this Chapter. And while some state laws provided for
criminal enforcement of trade secret theft, the legal landscape was far from
uniform.
Congress passed the EEA in 1996 “against a backdrop of increasing threats
to corporate security and a rising tide of international and domestic economic
espionage.” United States v. Hsu, 155 F.3d 189, 194 (3d Cir. 1998). Congress
further recognized that as America continued to transition to a technology and
information-based economy, its businesses’ confidential information would
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become increasingly tied to America’s national security. See H.R. Rep. No. 104788, at 4-7 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4023-26; see also
id. at 7 (1996) (noting “the importance of developing a systematic approach
to the problem of economic espionage”). Thus, the EEA was intended to bring
the legal framework prohibiting the theft of sensitive and proprietary business
information in line with the realities of the information age. See 142 Cong.
Rec. 27111-12 (1996) (Statement of Senator Specter). The statute closed a
gap in federal law that made it difficult to prosecute the theft of trade secrets.
Hsu, 155 F.3d at 194-95; see also United States v. Yang, 281 F.3d 534, 543 (6th
Cir. 2002) (noting “the purpose of the EEA was to provide a comprehensive
tool for law enforcement personnel to use to fight theft of trade secrets”). In
recent years, the number of EEA cases has dramatically increased. See, e.g.,
U.S. Intellectual Property Enforcement Coordinator, 2011 Annual Report on
Intellectual Property Enforcement, at 30-31 (2012); U.S. Dep’t of Justice, PRO
IP Act Annual Report FY2011, at 18-19 (2011); FBI, PRO IP Act Annual Report
FY2011, at 1 (2011); U.S. Dep’t of Justice, PRO IP Act Annual Report FY2010,
at 16-18 (2010); FBI, PRO IP Act Annual Report FY2010, at 1 (2010).
The EEA has undergone two recent amendments. The Theft of Trade
Secrets Clarification Act, Pub. L. No. 112-236, § 2, 126 Stat. 1627 (2012)
(“2012 amendment” ), enacted December 28, 2012, clarified the “interstate
commerce” element of 18 U.S.C. § 1832 in response to the Second Circuit’s
decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012). The Foreign
and Economic Espionage Penalty Enhancement Act, Pub. L. No. 112-269, § 3,
126 Stat. 2442 (2013), enacted January 14, 2013, increased the fines available
for 18 U.S.C. § 1831 offenses, and directed the United States Sentencing
Commission to review the penalties applicable to EEA offenses.
This Chapter considers a number of issues arising under the Economic
Espionage Act in depth. A sample indictment and jury instructions appear at
Appendix D. In addition to this Chapter, prosecutors may wish to consult the
following treatises or law review articles: Uniform Trade Secrets Act § 1 et seq.
(amended 1985), 14 U.L.A. 438 (1990); Roger M. Milgrim, Milgrim on Trade
Secrets (2012); Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am.
Crim. L. Rev. 849 (2011); 6 Joel Androphy, White Collar Crime, § 45:1-18
(2012); Economic Espionage and Trade Secrets, 57 United States Attorneys’
Bulletin, No. 5, 1-69 (Nov. 2009) (series of articles on prosecuting EEA cases),
available at http://www.justice.gov/usao/eousa/foia_reading_room/usab5705.
pdf; J. Michael Chamblee, Validity, Construction, and Application of Title I of
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Economic Espionage Act of 1996 (18 U.S.C.A. §§ 1831 et seq.), 177 A.L.R. Fed.
609 (2002); James M. Fischer, Note, An Analysis of the Economic Espionage
Act of 1996, 25 Seton Hall Legis. J. 239 (2001); Louis A. Karasik, Under the
Economic Espionage Act: Combating Economic Espionage is No Longer Limited to
Civil Actions to Protect Trade Secrets, 48 Fed. Law. 34 (2001); Michael Coblenz,
Intellectual Property Crimes, 9 Alb. L.J. Sci. & Tech. 235 (1999); James H.A.
Pooley, Mark A. Lemley & Peter J. Toren, Understanding the Economic Espionage
Act of 1996, 5 Tex. Intell. Prop. L.J. 177 (1997).

B.

The Economic Espionage Act of 1996,
18 U.S.C. §§ 1831-1839
1. Overview

The Economic Espionage Act of 1996 (“EEA”) promotes two primary and
related objectives: to protect national and economic security. As noted in the
House Report:
With this legislation, Congress will extend vital federal
protection to another form of proprietary economic
information—trade secrets. There can be no question that
the development of proprietary economic information is an
integral part of America’s economic well-being. Moreover, the
nation’s economic interests are a part of its national security
interests. Thus, threats to the nation’s economic interest are
threats to the nation’s vital security interests.
H.R. Rep. No. 104-788, at 4 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,
4023. President Clinton echoed these twin objectives in signing the legislation
into law:
Trade secrets are an integral part of virtually every sector of
our economy and are essential to maintaining the health and
competitiveness of critical industries operating in the United
States. Economic espionage and trade secret theft threaten our
Nation’s national security and economic well-being.
Until today, Federal law has not accorded appropriate or
adequate protection to trade secrets, making it difficult to
prosecute thefts involving this type of information. Law
IV.Theft of Commercial Trade Secrets

157

enforcement officials relied instead on antiquated laws that
have not kept pace with the technological advances of modern
society. This Act establishes a comprehensive and systemic
approach to trade secret theft and economic espionage,
facilitating investigations and prosecutions.
President William J. Clinton, Presidential Statement on the Signing of the
Economic Espionage Act of 1996 (Oct. 11, 1996), available at 1996 Pub.
Papers 1814 (Oct. 11, 1996).
The EEA criminalizes two types of trade secret misappropriation: economic
espionage, under § 1831, and trade secret theft, under § 1832. In Title 18,
§ 1831 punishes the theft of a trade secret to benefit a foreign government,
instrumentality, or agent:
(a) In general.—Whoever, intending or knowing that the offense
will benefit any foreign government, foreign instrumentality,
or foreign agent, knowingly—
(1) steals, or without authorization appropriates, takes,
carries away, or conceals, or by fraud, artifice, or deception
obtains a trade secret;
(2) without authorization copies, duplicates, sketches,
draws, photographs, downloads, uploads, alters, destroys,
photocopies, replicates, transmits, delivers, sends, mails,
communicates, or conveys a trade secret;
(3) receives, buys, or possesses a trade secret, knowing the
same to have been stolen or appropriated, obtained, or
converted without authorization;
(4) attempts to commit any offense described in any of
paragraphs (1) through (3); or
(5) conspires with one or more other persons to commit
any offense described in any of paragraphs (1) through (3),
and one or more of such persons do any act to effect the
object of the conspiracy,
shall, except as provided in subsection (b), be fined not more
than $5,000,000 or imprisoned not more than 15 years, or
both.
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18 U.S.C. § 1831(a) (as amended by the Foreign and Economic Espionage
Penalty Enhancement Act, Pub. L. No. 112-269, § 3, 126 Stat. 2442 (2013))
(emphasis added).
Section 1832, in contrast, punishes the commercial theft of trade secrets
carried out for economic advantage, whether or not it benefits a foreign
government, instrumentality, or agent:
(a) Whoever, with intent to convert a trade secret, that is related to
a product or service used or intended for use in interstate or foreign
commerce, to the economic benefit of anyone other than the owner
thereof, and intending or knowing that the offense will injure any
owner of that trade secret, knowingly—
(1) steals, or without authorization appropriates, takes,
carries away, or conceals, or by fraud, artifice, or deception
obtains such information;
(2) without authorization copies, duplicates, sketches,
draws, photographs, downloads, uploads, alters, destroys,
photocopies, replicates, transmits, delivers, sends, mails,
communicates, or conveys such information;
(3) receives, buys, or possesses such information, knowing
the same to have been stolen or appropriated, obtained, or
converted without authorization;
(4) attempts to commit any offense described in paragraphs
(1) through (3); or
(5) conspires with one or more other persons to commit
any offense described in paragraphs (1) through (3), and
one or more of such persons do any act to effect the object
of the conspiracy,
shall, except as provided in subsection (b), be fined under this
title or imprisoned not more than 10 years, or both.
18 U.S.C. § 1832(a) (as amended by the Theft of Trade Secrets Clarification
Act, Pub. L. No. 112-236, § 2, 126 Stat. 1627 (2012)) (emphasis added).
Although § 1831 (foreign economic espionage) and § 1832 (theft of trade
secrets) define separate offenses, they are nevertheless related. The following
IV.Theft of Commercial Trade Secrets

159

table highlights the common and distinct statutory language for both offenses,
which are further discussed below:

(1)

(2)
(3)
(4)

(5)
(6)

Section 1831(a)
(Economic Espionage)
The defendant knowingly
misappropriated information
(e.g., possessed, stole,
transmitted, downloaded) (or
conspired or attempted to do so)
The defendant knew or believed
this information was proprietary
and that he had no claim to it
The information was in fact a
trade secret (unless conspiracy
or an attempt is charged)
The defendant knew or
intended that the offense would
benefit a foreign government,
foreign instrumentality, or
foreign agent

Section 1832(a)
(Theft of Trade Secrets)
Same

Same
Same
The defendant intended to convert
the trade secret to the economic
benefit of anyone other than the
owner
The defendant knew or intended
that the offense would injure the
owner of the trade secret
The trade secret was related to
a product or service used or
intended for use in interstate or
foreign commerce

Sections 1831(a) and 1832(a) both require the government to prove beyond
a reasonable doubt that: (1) the defendant misappropriated information (or
conspired or attempted to do so); (2) the defendant knew or believed this
information was proprietary and that he had no claim to it; and (3) the
information was in fact a trade secret (unless, as is discussed below, the crime
charged is a conspiracy or an attempt). See 18 U.S.C. §§ 1831(a), 1832(a).
Both sections criminalize trade secret misappropriations in a variety of forms,
including but not limited to:
• stealing, taking or using fraud, artifice, or deception to obtain the trade
secret, under §§ 1831(a)(1), 1832(a)(1);

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•
•

duplicating, taking photographs, downloading, uploading, altering,
destroying, transmitting, or conveying the trade secret, under
§§ 1831(a)(2), 1832(a)(2);
receiving, buying or possessing the trade secret, knowing the same
to have been stolen or appropriated, obtained, or converted without
authorization, under §§ 1831(a)(3), 1832(a)(3).

To prove economic espionage under 18 U.S.C. § 1831, the government
must also prove the defendant knew or intended that the offense would benefit
a foreign government, foreign instrumentality, or foreign agent.
If a foreign instrumentality element does not exist or cannot be proved,
the government may still establish a violation of 18 U.S.C. § 1832 by proving,
in addition to the first three elements described above, that: (4) the defendant
intended to convert the trade secret to the economic benefit of anyone other
than the owner; (5) the defendant knew or intended that the offense would
injure the owner of the trade secret; and (6) the trade secret was related to a
product or service used or intended for use in interstate or foreign commerce.
The EEA can be applied to a wide variety of criminal conduct. The
statute criminalizes attempts and conspiracies to violate the EEA and certain
extraterritorial conduct. See Sections B.6. and E.4. of this Chapter.
The EEA also provides several remedies that are unusual in a criminal
statute: civil injunctive relief against violations, to be obtained by the Attorney
General, 18 U.S.C. § 1836, and confidentiality orders to maintain the trade
secret’s secrecy throughout the prosecution, 18 U.S.C. § 1835. See Section D.
of this Chapter. The statute includes an extraterritoriality provision, 18 U.S.C.
§ 1837, which extends its reach to conduct outside the United States where
certain conditions are met. See Section E.4. of this Chapter.
For a discussion of the Department of Justice’s oversight of and necessary
approvals for EEA prosecutions, see Sections B.4, E.5.
2. Relevance of Civil Cases
The EEA’s definition of a trade secret, 18 U.S.C. § 1839(3), is based in
part on the trade secret definition in the Uniform Trade Secrets Act (UTSA),
14 U.L.A. 438 (1990). See H. R. Rep. No. 104-788, at 12 (1996), reprinted
in 1996 U.S.C.C.A.N. 4021, 4031. Cases that address trade secrets outside
the EEA should, in most cases, be relevant in EEA prosecutions. See generally
United States v. Chung, 659 F.3d 815 (9th Cir. 2011), cert. denied, _ U.S. _
IV.Theft of Commercial Trade Secrets

161

(2012) (Because the EEA trade secret definition “is derived from the definition
that appears in the Uniform Trade Secrets Act ... we consider instructive
interpretations of state laws that adopted the UTSA definition without
substantial modification”) (footnote omitted); Hsu, 155 F.3d at 196 (“The
EEA’s definition of a ‘trade secret’ is similar to that found in a number of state
civil statutes and the Uniform Trade Secrets Act (‘UTSA’), a model ordinance
which permits civil actions for the misappropriation of trade secrets. There are,
though, several critical differences which serve to broaden the EEA’s scope.”)
(footnote omitted).
3. Elements Common to 18 U.S.C. §§ 1831, 1832
As discussed below, a trade secret consists of three primary components:
(1) information; (2) which derives independent economic value from being
secret; and (3) that the owner took reasonable measures to protect. See also
ConFold Pac., Inc. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (Posner,
J.) (noting a trade secret can be any information, whether in tangible form or
otherwise, that its owner takes reasonable measures to keep secret, and that has
some economic value as a result of its secrecy) (citations omitted).
The elements for completed offenses are discussed in the ensuing sections.
Attempts and conspiracies are discussed in Section B.6. of this Chapter.
a. The Information Was a Trade Secret
The government should ascertain the specific information the victim claims
is a trade secret at the outset of the investigation. “[A] prosecution under [the
EEA] must establish a particular piece of information that a person has stolen
or misappropriated.” 142 Cong. Rec. 27, 117 (1996). This will help avoid the
defendant’s defense that he was merely relying on his general knowledge, skills,
and abilities along, perhaps, with legitimate reverse engineering. See Section
C.3. of this Chapter. Other questions to consider include how many trade
secrets may have been misappropriated and how they relate to one another.
In ascertaining what is the trade secret and the number of trade secrets
in a particular case, consider who would be the best trial witness to testify
about these issues before the jury. For example, where source code is the trade
secret, the chief technology officer, or other supervisor overseeing the project
development, may be an appropriate witness. In other cases, a chief engineer
may be a suitable witness, depending on the nature of the trade secret.

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The defense, however, has no right to take pre-trial depositions of the
government’s expert witnesses to determine what the government will claim is
a trade secret and why. See United States v. Ye, 436 F.3d 1117, 1123 (9th Cir.
2006) (granting government’s petition for a writ of mandamus and rescinding
trial court order for deposition of the government’s expert witnesses).
i. “Information”
Whether particular information is a trade secret is a question of fact. See,
e.g., Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 419 (4th Cir.
1999) (noting that whether or not a trade secret exists is a “fact-intensive
question to be resolved upon trial”); see also 4 Roger M. Milgrim, Milgrim on
Trade Secrets § 15.01[1][a][i].
The EEA defines a trade secret very broadly to include all types of
information, regardless of the method of storage or maintenance, that the owner
has taken reasonable measures to keep secret and that itself has independent
economic value. Specifically, §1839(3) states:
(3) the term “trade secret” means all forms and types of financial,
business, scientific, technical, economic, or engineering
information, including patterns, plans, compilations,
program devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or codes, whether
tangible or intangible, and whether or how stored, compiled,
or memorialized physically, electronically, graphically,
photographically, or in writing if —
(A) the owner thereof has taken reasonable measures to
keep such information secret; and
(B) the information derives independent economic value,
actual or potential, from not being generally known to, and
not being readily ascertainable through proper means by,
the public.
18 U.S.C. § 1839(3). The statute’s legislative history also counsels a broad
interpretation of this definition. See H.R. Rep. No. 104-788, at 12 (1996),
reprinted in 1996 U.S.C.C.A.N. 4021, 4031. In addition, because the EEA’s
definition of a trade secret derives in part from civil law, civil cases that
address trade secrets outside the EEA should, in most cases, be helpful in EEA
prosecutions. See Section B.2. of this Chapter.
IV.Theft of Commercial Trade Secrets

163

Examples of trade secrets in criminal prosecutions include:
• Processes, methods, and formulas for an anti-cancer drug known as
Taxol. United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998)
• Cost information unavailable to the public, confidential business plan,
and customer list. United States v. Martin, 228 F.3d 1 (1st Cir. 2000)
• Measurements, metallurgical specifications, and engineering drawings
to produce an aircraft brake assembly. United States v. Lange, 312 F.3d
263 (7th Cir. 2002)
• Adhesive product information. United States v. Yang, 281 F.3d 534 (6th
Cir. 2002)
• Microsoft windows source code. United States v. Genovese, 409 F. Supp.
2d 253 (S.D.N.Y. 2005)
• Coca–Cola documents and product samples. United States v. Williams,
526 F.3d 1312 (11th Cir. 2008) (per curiam)
• Biological strains and plasmids. United States v. Huang, Nos. 1:10-cr102, 1:11-cr-163 (S.D. Ind. 2010)
• Documents relating to the Space Shuttle, Delta IV and C-17. United
States v. Chung, 633 F. Supp. 2d 1134 (C.D. Cal. 2009), aff’d, 659 F.3d
815 (9th Cir. 2011), cert. denied, _ U.S. _ (2012)
• Photographs of tire-assembly machine. United States v. Howley,
__F.3d__, 2013 WL 399345, at *3 (6th Cir. Feb. 4, 2013).
For an extensive collection of cases analyzing whether specific types of
information constitute a trade secret, see 1 Milgrim on Trade Secrets § 1.09. In
cases alleging attempt and conspiracy, the government need not prove that the
information actually was a trade secret. See Section B.6. of this Chapter.
ii. Secrecy
The key attribute of a trade secret is that the underlying information “not
be[] generally known to ... the public” and that it “not be[] readily ascertainable
through proper means by [] the public.” 18 U.S.C. § 1839(3)(B).
Unlike other forms of intellectual property, a trade secret need only possess
“minimal novelty.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974)
(quoting Comment, The Stiffel Doctrine and the Law of Trade Secrets, 62 Nw.
U. L. Rev. 956, 969 (1968)); see also Avidair Helicopter Supply, Inc. v. RollsRoyce Corp., 663 F.3d 966, 972 (8th Cir. 2011) (finding “existence of a trade
secret is determined by the value of a secret, not the merit of its technical
improvements”); Learning Curve Toys, Inc. v. Playwood Toys, Inc., 342 F.3d 714,
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724 (7th Cir. 2003) (finding that, in contrast to “a patentable invention, a
trade secret need not be novel or unobvious.”); Avtec Sys., Inc. v. Peiffer, 21
F.3d 568, 575 (4th Cir. 1994) (holding that the “hallmark of a trade secret is
not its novelty but its secrecy”); Arco Indus. Corp. v. Chemcast Corp., 633 F.2d
435, 442 (6th Cir. 1980) (trade secret need only minimal novelty). This has
been defined as some element that sets the information apart from what is
generally known. “While we do not strictly impose a novelty or inventiveness
requirement in order for material to be considered a trade secret, looking at the
novelty or uniqueness of a piece of information or knowledge should inform
courts in determining whether something is a matter of general knowledge,
skill or experience.” 142 Cong. Rec. 27, 117 (1996); see also Hertz v. Luzenac
Grp., 576 F.3d 1103, 1110 (10th Cir. 2009) (observing that “[a] finding
that some of the elements are secret may support a conclusion that the entire
process is protected”); cf. Buffets, Inc. v. Klinke, 73 F.3d 965, 968 (9th Cir.
1996) (holding that plaintiff’s recipes were not trade secrets in part because
they lacked the requisite novelty).
Whether the term “public” in 18 U.S.C. § 1839(3)(B) refers to the general
public or those with general skills in a particular trade or industry has been the
subject of litigation. “[E]ither the phrase ‘readily ascertainable’ or the phrase
‘the public’ must be understood to concentrate attention on either potential
users of the information, or proxies for them (which is to say, persons who have
the same ability to ‘ascertain’ the information).” United States v. Lange, 312 F.3d
263, 268 (7th Cir. 2002) (Easterbrook, J.). But see id. at 271-72 (Ripple, J.,
concurring) (suggesting that this holding is dictum); see also Chung, 659 F.3d
at 825 (noting open issue and “some conflict between circuits” on this issue).
In other words, information will not necessarily be a trade secret just because it
is not readily ascertainable by the general public. Under the Seventh Circuit’s
view, the information may not be a trade secret if it is readily ascertainable by
those within the information’s field of specialty.
If a scientist could ascertain a purported trade secret formula only by
gleaning information from publications and then engaging in many hours
of laboratory testing and analysis, the existence of such publications would
not necessarily disqualify the formula as a trade secret under the EEA, since
the scientist’s work may probably not qualify as “readily ascertainable through
proper means by, the public.” See 18 U.S.C. § 1839(3)(B). But the formula
would not be a trade secret if it could be ascertained or reverse engineered
within a relatively short time or through the expenditure of few resources.
IV.Theft of Commercial Trade Secrets

165

See Lange, 312 F.3d at 269 (EEA case) (“Such measurements could not be
called trade secrets if ... the assemblies in question were easy to take apart and
measure.”); Buffets, Inc. v. Klinke, 73 F.3d 965, 968 (9th Cir. 1996) (holding
restaurant chain’s recipes were not trade secrets because, although innovative,
the recipes were readily ascertainable by others); Marshall v. Gipson Steel, Inc.,
806 So.2d 266, 271-72 (Miss. 2002) (holding that company’s bid estimating
system was readily ascertainable by using simple math applied to data on past
bids, and thus was not a trade secret); Weins v. Sporleder, 569 N.W.2d 16, 2021 (S.D. 1997) (holding formula of cattle feed product was not a trade secret
because the ingredients could be determined through chemical or microscopic
analysis in four or five days, at most, and for about $27).
iii. Elements in the Public Domain
A trade secret can include elements that are in the public domain if the
trade secret itself constitutes a unique, “effective, successful and valuable
integration of the public domain elements.” Rivendell Forest Prods., Ltd. v.
Georgia-Pacific Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); accord Tewari DeOx Sys., Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613 (5th Cir.
2011); Strategic Directions Grp., Inc. v. Bristol-Myers Squibb Co., 293 F.3d
1062, 1065 (8th Cir. 2002); Metallurgical Indus., Inc. v. Fourtek, Inc., 790
F.2d 1195, 1202 (5th Cir. 1986); Servo Corp. of America v. General Electric Co.,
393 F.2d 551, 554 (4th Cir.1968) (holding that a trade secret “might consist
of several discrete elements, any one of which could have been discovered by
study of material available to the public”); Apollo Techs. Corp. v. Centrosphere
Indus., 805 F. Supp. 1157, 1197 (D.N.J. 1992). In fact, “[a] trade secret can
exist in a combination of characteristics and components, each of which, by
itself, is in the public domain, but the unified process, design and operation
of which, in unique combination, affords a competitive advantage and is a
protectable secret.” Metallurgical Indus., 790 F.2d at 1202 (quoting Imperial
Chem., Ltd. v. National Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir.
1965)); accord Hertz v. Luzenac Grp., 576 F.3d 1103, 1109-10 (10th Cir. 2009);
Mike’s Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 411 (6th Cir. 2006);
Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125,1130 (10th Cir. 2003); 3M v.
Pribyl, 259 F.3d 587, 595-96 (7th Cir. 2001); Integrated Cash Mgmt. Servs.,
Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990); Syntex
Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677, 684 (7th Cir. 1983); Rivendell
Forest Prods., 28 F.3d at 1046. For example, in Metallurgical Industries, when
the company modified a generally-known zinc recovery process, the modified
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process could be considered a trade secret even though the original process
and the technologies involved were publicly known, because the details of the
modifications were not. 790 F.2d at 1201-03.
The definition of a trade secret under 18 U.S.C. § 1839(3) includes
“compilations.” The courts have consistently recognized that a compilation
which includes publicly known elements may still qualify as a trade secret so
long as the unified information satisfies the requirements to establish a trade
secret. See, e.g., AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d
966, 972 (8th Cir. 2011) (“Compilations of non-secret and secret information
can be valuable so long as the combination affords a competitive advantage and
is not readily ascertainable.”); Decision Insights, Inc. v. Sentia Group, Inc., 311
Fed. Appx. 586, at 592-94 (4th Cir. 2009) (per curiam) (noting that a software
compilation can qualify for protection as a trade secret); 3M v. Pribyl, 259 F.3d
587, 586 (7th Cir. 2001) (trade secret established for operating procedures
and manuals which included material in the public domain, concluding that
“when all the cleaning procedures, temperature settings, safety protocols, and
equipment calibrations are collected and set out as a unified process, that
compilation, if it meets the other qualifications, may be considered a trade
secret”); Imperial Chem. Indus. v. Nat’l Distillers and Chem. Corp., 342 F.2d 737,
740 (2d Cir. 1965) (while eight of the nine components for a chemical process
were in the public domain, the “unified description of the design, process and
operation, i.e, the way in which the features were interrelated” constituted a
trade secret); see also Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284,
1291 (11th Cir. 2003) (“even if all of the information is publicly available, a
unique combination of that information, which adds value to the information,
also may qualify as a trade secret”).
iv. Independent Economic Value
The trade secret must derive “independent economic value, actual
or potential, from not being generally known to, and not being readily
ascertainable by, the public.” 18 U.S.C. § 1839(3)(B). Although the EEA does
not require the government to prove a specific level of value, the government
must prove that the secret has some value. Economic value “speaks to the value
of the information to either the owner or a competitor; any information which
protects the owner’s competitive edge or advantage.” US West Communications,
Inc. v. Office of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa 1993) (citations
omitted). “[I]nformation kept secret that would be useful to a competitor and
require cost, time and effort to duplicate is of economic value.” Id. (citation
IV.Theft of Commercial Trade Secrets

167

omitted); see also Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 663
(4th Cir. 1993) (object code derived independent economic value from secrecy
where the trade secret owner “generates most of its revenues by providing
computer services to engineering firms and construction companies” and
“receives raw data from its clients, processes the data with the Tunnel System
software, and reports the results back to the clients”; “[a]rmed with a copy of
the object code, an individual would have the means to offer much the same
engineering services as” the trade secret owner). Independent economic value
can be shown even where there are no direct competitors for the particular trade
secret but disclosure would confer advantages to competitors. See, e.g., Chung,
659 F.3d at 827 (“Although Boeing had no competitors for the integration
project itself, ... [a] reasonable inference is that the information could assist a
competitor in understanding how Boeing approaches problem-solving and in
figuring out how best to bid on a similar project in the future, for example, by
underbidding Boeing on tasks at which Boeing appears least efficient.”).
The secret’s economic value can be demonstrated by the circumstances of
the offense, such as the defendant’s acknowledgment that the secret is valuable,
the defendant’s asking price, or an amount of time or money the defendant’s
buyers would have required to replicate the information. See United States v.
Lange, 312 F.3d 263, 269 (7th Cir. 2002); United States v. Genovese, 409 F.
Supp. 2d 253, 257 (S.D.N.Y. 2005).
Not all of a business’s confidential information may be valuable in a
competitor’s hands. For example, in Microstrategy, Inc. v. Business Objects, S.A.,
331 F. Supp. 2d 396, 421 (E.D. Va. 2004), the court found that a companywide email concerning the firm’s financial problems and plans for survival was
not a trade secret because it was unclear what economic value it would have
had to anyone outside the company. See also US West Communications, 498
N.W.2d at 715 (finding no evidence of economic value without evidence that
disclosure would have harmed the victim).
Customer Lists or Information
Some information that a company deems proprietary may not qualify as a
trade secret. For example, under the Uniform Trade Secrets Act—which defines
trade secrets in a manner similar to the EEA—a customer list is generally a trade
secret only if the customers are not known to others in the industry, could be
discovered only by extraordinary efforts, and the list was developed through
a substantial expenditure of time and money. See ATC Distribution Group v.
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Whatever It Takes Transmissions & Parts, 402 F.3d 700, 714-15 (6th Cir. 2005);
Conseco Fin. Servicing Corp. v. North Am. Mortgage Co., 381 F.3d 811, 819
& n.6 (8th Cir. 2004) (holding files of thousands of customers nationwide
who were identified through a complex computer system to be trade secrets);
United States v. Martin, 228 F.3d 1, 12 n.8 (1st Cir. 2000) (noting customer
list could qualify as a trade secret); A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d
82, 89 (2d Cir. 1991) (customer list from tour agency could qualify as a trade
secret); Surgidev Corp. v. Eye Technology, Inc., 828 F.2d 452, 455 & n.3 (8th
Cir. 1987) (ophthalmologist customer information on high volume implanters
of surgically implanted intraocular lenses devices qualified as a trade secret);
Leo Silfen, Inc. v. Cream, 278 N.E.2d 636, 639-41 (N.Y. 1972). Some state
statutes, based on Section 1(4) of the Uniform Trade Secret Act, expressly
include customer lists within the definition of a trade secret.
Whether a customer list qualifies as a trade secret depends on the facts.
For example, a customer list is less likely to be considered a trade secret if
customers’ identities are readily ascertainable to those outside the list-owner’s
business and the list was compiled merely through general marketing efforts.
See ATC Distribution Group, 402 F.3d at 714-15 (affirming that customer list of
transmission parts customers was not a trade secret because names of purchasers
could “be ascertained simply by calling each shop and asking”); Nalco Chem. Co.
v. Hydro Techs., Inc., 984 F.2d 801, 804 (7th Cir. 1993) (holding that customer
list was not a trade secret when base of potential customers was “neither fixed
nor small”); Standard Register Co. v. Cleaver, 30 F. Supp. 2d 1084, 1095 (N.D.
Ind. 1998) (holding that customer list was not a trade secret where owner’s
competitors knew customer base, knew other competitors quoting the work,
and were generally familiar with the customers’ needs).
v. Reasonable Measures
Trade secrets are fundamentally different from other forms of property
in that a trade secret’s owner must take reasonable measures under the
circumstances to keep the information confidential. See 18 U.S.C. § 1839(3)
(A); Lange, 312 F.3d at 266. This requirement is generally not imposed upon
those who own other types of property. For example, a thief can be convicted
for stealing a bicycle the victim left unlocked in a public park, whereas a thief
might not be convicted under the EEA for stealing the bicycle’s design plans if
the victim left the plans in a public park.

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For these reasons, prosecutors and investigators should identify the
measures the victim used to protect the trade secret early in their investigation.
These protections will be a critical component of the case or the decision not
to prosecute. One means of identifying the reasonable measures safeguarding
the trade secret is to visit the facility. The barriers to access may be more readily
apparent by viewing the circumstances and surroundings.
Whether reasonable efforts have been employed is normally a question of
fact for the fact-finder. See, e.g., Camp Creek Hospitality Inns, Inc. v. Sheraton
Franchise Corp., 139 F.3d 1396, 1411 (11th Cir. 1998) (“Whether Camp
Creek’s efforts to keep the information secret in this case were ‘reasonable
under the circumstances’ presents a question for the trier of fact.”); Rockwell
Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 197 (7th Cir. 1991) (“But
only in an extreme case can what is a ‘reasonable’ precaution be determined on
a motion for summary judgment, because the answer depends on a balancing
of costs and benefits that will vary from case to case and so require estimation
and measurement by persons knowledgeable in the particular field of endeavor
involved.”).
Depending on the trade secret being protected, security measures may
include physical safeguards, network security, and contractual protections.
These measures may include:
Physical Security
• Restricting employee access to building areas, based on a need to
know;
• Requiring identification and access badges intended to limit access
to restricted areas;
• Keeping the secret physically secure in locked drawers, cabinets, or
rooms;
• Restricting visitors from accessing areas where confidential
information is kept;
• Requiring visitors to obtain clearance prior to visit, pass through
security checkpoints and be escorted by an employee at all times;
and,
• Securing buildings with fences, locked doors and guards.
Network Security
• Encrypting sensitive electronic information, such as uncompiled
source code;
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•
•
•
•

Protecting computer files and directories with passwords and
recurring password changes;
Employing corporate firewalls and virtual private networks for
remote access;
Restricting employees from using unapproved peripherals, such as
high capacity portable storage devices; and
Maintaining of network logs.

Contractual and Employment Practices
• Restricting access to those with a need to know;
• Splitting tasks among people or teams to avoid concentrating too
much information in any one place;
• Requiring recipients, including employees, contractors and
business partners, to sign confidentiality, non-disclosure, or noncompetition agreements;
• Marking documents as confidential, proprietary, or secret;\
• Providing regular training concerning steps to safeguard trade
secrets; and
• Conducting exit interview once employee leaves company, and
confirming confidentiality obligations with departing employee.
See also Chung, 659 F.3d at 825 (“Security measures, such as locked
rooms, security guards, and document destruction methods, in addition to
confidentiality procedures, such as confidentiality agreements and document
labeling, are often considered reasonable measures.”); Lange, 312 F.3d at 266
(EEa case concerning aircraft brake assemblies); Reingold v. Swiftships, Inc., 126
F.3d 645, 650 (5th Cir. 1997) (discussing steps to protect ship-builder’s mold
for fiberglass boat hulls); 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.04.
The owner’s security measures need not be absolute or the best available,
and need only satisfy the standard of reasonableness under the facts and
circumstances of the specific case. See H.R. Rep. No. 104-788, at 7 (1996),
reprinted in 1996 U.S.C.C.A.N. 4021, 4026 (“[A]n owner of this type of
information need only take ‘reasonable’ measures to protect this information….
[I]t is not the Committee’s intent that the owner be required to have taken every
conceivable step to protect the property from misappropriation.”); Howley,
2013 WL 399345, at *3 (“[t]he ‘reasonable measures’ requirement does not
mean a company must keep its own employees and suppliers in the dark about
machines they need to do their work”); Lange, 312 F.3d at 266; Surgidev Corp.
v. Eye Tech., Inc., 828 F.2d 452, 455 (8th Cir. 1987) (“Only reasonable efforts,
IV.Theft of Commercial Trade Secrets

171

not all conceivable efforts, are required to protect the confidentiality of putative
trade secrets.”); see also Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d
1226, 1235-36 (8th Cir. 1994) (discussing steps to safeguard genetic messages
of genetically engineered corn); Gates Rubber Co. v. Bando Chem. Indus., 9
F.3d 823, 848-49 (10th Cir. 1993) (discussing steps to protect industrial belt
replacement software); MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511,
521 (9th Cir. 1993) (noting reasonable measures such as requiring “employees
to sign confidentiality agreements respecting [company’s] trade secrets”); K-2
Ski Co. v. Head Ski Co., 506 F.2d 471, 473-74 (9th Cir. 1974) (discussing steps
to protect design and manufacture specifications of high performance skis); Elm
City Cheese Co. v. Federico, 752 A.2d 1037, 1049-53 (Conn. 1999) (holding
that victim’s failure to require defendant employee to sign a confidentiality,
non-disclosure, or non-competition agreement was reasonable “in light of the
close personal relationship enjoyed over the years” by the parties); 1 Milgrim
on Trade Secrets § 1.04.
A recent Ninth Circuit decision, United States v. Chung, underscores the
requirement that only reasonable measures are necessary to satisfy this element.
In considering a sufficiency of the evidence claim, the court considered whether
reasonable measures were employed to safeguard a trade secret (phased array
antenna documents for the space shuttle) which was not secured by locks.
Taken as a whole, other measures were reasonable. As the court noted:
Although none of the documents was kept under lock and key,
Boeing implemented general physical security measures for
its entire plant. Security guards required employees to show
identification before entering the building, and Boeing reserved
the right to search all employees’ belongings and cars. Boeing
also held training sessions instructing employees not to share
documents with outside parties, and it required employees,
including Defendant, to sign confidentiality agreements.
Further, two of the four phased array documents (underlying
counts 3 and 5) were marked as proprietary. Thus, there was
sufficient evidence to support the conclusion that Boeing took
reasonable measures to keep all four phased array antenna
documents secret.
Chung, 659 F.3d at 827.

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It is important that the reasonable measures standard is appropriately and
fairly applied. Courts have held that the focus of reasonableness should be on
the measures that were taken, not on other measures that could have been
taken, particularly with the benefit of hindsight. For example, the Tenth Circuit
reversed a summary judgment based on misapplication of the reasonableness
standard. Specifically, the trial court erred “in considering whether Luzenac
adequately protected the secrecy of [trade secret] 604AV, the district court
focused on the evidence of the steps that Luzenac did not take rather than the
reasonableness of the measures it did take.” Hertz v. Luzenac Group, 576 F.3d
1103, 1109 (10th Cir. 2009). The court observed: “[T]here always are more
security precautions that can be taken. Just because there is something else that
Luzenac could have done does not mean that their efforts were unreasonable
under the circumstances.” Id. at 1113; see also General Universal Sys., Inc. v.
Lee, 379 F.3d 131, 150 (5th Cir. 2004) (concluding the district erroneously
“focused solely on Lopez’s alleged failure to take ‘reasonable precautions’ to
protect” the trade secret where there was “uncontroverted evidence that”
reasonable precautions were taken). Additionally, courts have held that “the
fact that one ‘could’ have obtained a trade secret lawfully is not a defense if
one does not actually use proper means to acquire the information.” Pioneer
Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (4th Cir. 1994)
(citations omitted); see also Wyeth v. Natural Biologics, Inc., 395 F.3d 897,
899-900 (8th Cir. 2005) (rejecting claim that the trade secret owner “failed
to adequately secure its trade secret in many [specified] ways” and concluding
sufficient reasonable measures included “use of physical security, limited access
to confidential information, employee training, document control, and oral
and written understandings of confidentiality”).
If a trade secret was disclosed to licensees, vendors, or third parties for
limited purposes, those disclosures do not waive trade secret protections so
long as the trade secret owner took reasonable security measures before and
during disclosure, such as requiring non-disclosure agreements from all
recipients. See, e.g., Howley, 2013 WL 399345, at *4; Quality Measurement
Co. v. IPSOS S.A., 56 Fed. Appx. 639, 647 (6th Cir. 2003); MAI Sys. Corp.,
991 F.2d at 521; Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., 923
F. Supp. 1231, 1254 (N.D. Cal. 1995). However, other reasonable measures
may be adopted instead. For example, where the trade secret owner “relies on
deeds (the splitting of tasks) rather than promises to maintain confidentiality,” it
is “irrelevant that [the victim] does not require vendors to sign confidentiality
agreements.” Lange, 312 F.3d at 266 (emphasis in original).
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173

As discussed above, information does not lose its status as a trade secret if
it is disclosed to the government for purposes of investigation or prosecution.
For this reason, federal prosecutors and law enforcement agents need not sign
protective orders with victims before accepting trade secret information.
A defendant who was unaware of the victim’s security measures can be
convicted under the EEA if he was aware that the misappropriated information
was proprietary. United States v. Krumrei, 258 F.3d 535, 538-39 (6th Cir. 2001)
(rejecting void-for-vagueness argument against EEA); accord United States v.
Genovese, 409 F. Supp. 2d 253, 258 (S.D.N.Y 2005) (“In this case, one can
infer that Genovese knew not only that the source code was proprietary, but
that any protective measures by Microsoft had been circumvented.”). There is
no requirement that a defendant be aware that the victim implemented security
measures to protect the misappropriated information.
b. Misappropriation
i. Means of Misappropriation
Under § 1831 and § 1832, a defendant must have misappropriated the
trade secret through one of the acts prohibited in §§ 1831(a)(1)-(5) or 1832(a)
(1)-(5), respectively. Misappropriation covers a broad range of acts including
traditional methods of theft in which a trade secret is physically removed from
the owner’s possession, and also less traditional methods of misappropriation
such as copying, duplicating, sketching, drawing, photographing, downloading,
uploading, altering, destroying, photocopying, replicating, transmitting,
delivering, sending, mailing, communicating, or conveying the information. See
18 U.S.C. §§ 1831(a)(1)-(2), 1832(a)(1)-(2). Although many of these means
of misappropriation leave the original property in the hands of its owner, they
reduce or destroy the trade secret’s value nonetheless. Congress prohibited all
types of misappropriation “to ensure that the theft of intangible information is
prohibited in the same way that the theft of physical items is punished.” H.R.
Rep. No. 104-788, at 11 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4030.
Misappropriation also includes the knowing receipt, purchase, or possession of
trade secrets. See 18 U.S.C. §§ 1831(3), 1832(3).
Because §§ 1831 and 1832 do not contain a specific statute of limitations,
the general five-year statute of limitations for non-capital offenses applies. See
18 U.S.C. § 3282. In one recent prosecution for economic espionage (United
States v. Chung), however, the court held misappropriation that occurred before
the five-year statute of limitation does not defeat a trade secret prosecution
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because possession of trade secrets is a “continuing offense.” In Chung, the
defendant, a former Boeing employee, misappropriated trade secrets before
the five-year statute of limitations period (2003 through 2008) and included
conduct that occurred during the late 1970s. The court concluded that trade
secrets misappropriated before the period of the statute of limitations, yet
possessed within the period of the statute of limitations may violate the statute
so long as the remaining elements of the offense are satisfied. See Chung, 633
F. Supp. 2d at 1146 n.12 (“Because Mr. Chung continued to possess the
documents in 2006, there is no statute of limitations problem here. [P]ossessory
offenses have long been described as ‘continuing offenses’ that are not complete
upon receipt of the prohibited item. Rather, the statute of limitations does
not begin to run until the possessor parts with the item.”) (quotation marks
and citation omitted). On appeal, the Ninth Circuit affirmed, concluding
that the conspiracy to violate the EEA was established by proof that the
agreement between the defendant and his co-conspirators “continued into the
limitations period.” Chung, 659 F.3d at 828; see also id. (“Given Defendant’s
history of passing technical documents to China, however, a rational trier of
fact reasonably could infer from Defendant’s more recent possession of similar
documents that his intent to benefit China persisted well into the limitations
period and extended to his possession of the trade secrets.”).
When charging trade secret theft or economic espionage under 18 U.S.C.
§§ 1831 and 1832 the prosecutor may charge each means of theft as a separate
count. For example, where the defendant takes a trade secret prototype from
his employer’s facility, and also emails trade secret design schematics to a
competitor, the prosecutor may include a count for violation of § 1832(a)(1)
with respect to the stealing of the prototype and a separate count for violation
of § 1832(a)(2) with respect to the emailing of the design specifications. A
prosecutor may also wish to consider what other legal theories may apply to the
facts of the case. See Section G. of this chapter for other charges to consider.
ii. Memorization Included
The above types of misappropriation include not only manipulating a
physical object, but also conveying or using intangible information that has
been memorized. The EEA defines a trade secret as “all forms and types of
financial, business, scientific, technical, economic, or engineering information,
... whether tangible or intangible, and whether or how stored.” 18 U.S.C.
§ 1839(3) (emphasis added). The statute also prohibits not only actions taken
against a trade secret’s physical form, such as “steal[ing], ...tak[ing], [and]
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carr[ying] away”, 18 U.S.C. §§ 1831(a)(1), 1832(a)(1), but also actions that
can be taken against a trade secret in a memorized, intangible form, such as
“sketch[ing], draw[ing], ... download[ing], upload[ing], ..., transmit[ting], ...
communicat[ing], [and] convey[ing],” 18 U.S.C. §§ 1831(a)(2), 1832(a)(2).
See James H.A. Pooley et al., Understanding the Economic Espionage Act of 1996,
5 Tex. Intell. Prop. L.J. 177 (1997). In this respect, as in others, the EEA
echoes civil law and some pre-EEA caselaw. See, e.g., Stampede Tool Warehouse,
Inc. v. May, 651 N.E.2d 209, 217 (Ill. App. Ct. 1995) (“A trade secret can be
misappropriated by physical copying or by memorization.”) (citations omitted);
4 Roger M. Milgrim, Milgrim on Trade Secrets § 15.01[e]. Trade secret cases to
the contrary that do not involve the EEA are not persuasive authority on this
point.
This is not to say, however, that any piece of business information that can
be memorized is a trade secret. As noted, the EEA does not apply to individuals
who seek to capitalize on their lawfully developed knowledge, skill, or abilities.
When the actions of a former employee are unclear and evidence of theft has
not been discovered, it may be advisable for a company to pursue its civil
remedies and make another criminal referral if additional evidence of theft is
developed.
Where available, tangible evidence of theft or copying is helpful in all cases
to overcome the potential problem of prosecuting the defendant’s purported
“mental recollections” and a defense that “great minds think alike.”
iii. Lack of Authorization
The crux of misappropriation is that the defendant acted “without
authorization” from the trade secret’s owner. The necessary “authorization is
the permission, approval, consent or sanction of the owner” to obtain, destroy,
or convey the trade secret. 142 Cong. Rec. 27,116 (1996). Thus, although an
employee may be authorized to possess a trade secret during his employment, he
would violate the EEA if he conveyed it to a competitor without his employer’s
permission.
iv. Misappropriation of Only Part of a Trade Secret
A defendant can be prosecuted even if he misappropriated only part of a
trade secret. Using only part of the secret, so long as it too is secret, qualifies as
misappropriation. Mangren Research and Dev. Corp. v. National Chem. Co., 87
F.3d 937, 943-44 (7th Cir. 1996); cf. United States v. Pemberton, 904 F.2d 515,
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517 (9th Cir. 1990) (rejecting argument of defendant convicted for receiving
30 stolen technical landscape and irrigation drawings for a commercial
development “that the incomplete nature of the drawings rendered them
worthless,” because evidence established that “some of the drawings would
have been useful to the developer, even though not entirely finished,” and
the developer might have been willing to adjust the price for the drawings’
incomplete nature); United States v. Inigo, 925 F.2d 641, 653-54 (3d Cir. 1991)
(Hobbs Act conviction) (rejecting defendant’s argument that the victim should
not have feared economic loss because, inter alia, he possessed less than five
percent of the confidential documents on a subject, and holding that “what
matters is how important the documents [the defendant] had were to [the
defendant], not their number”).
v. Mere Risk of Misappropriation Not Prosecutable,
but Attempts and Conspiracies Are
A former employee cannot be prosecuted just because she was exposed
to a trade secret at her former job and has now moved to a competitor. The
government must establish that she knowingly stole or misappropriated a
particular trade secret and did so with the “intent to convert a trade secret ... to
the economic benefit of anyone other than the owner thereof, and intending or
knowing that the offense will, injure any owner of that trade secret.” 18 U.S.C.
§ 1832(a). The intent element is considered further below.
c. Knowledge
The EEA contains a heightened mens rea requirement. Section 1831 requires
that the government prove that the defendant (1) knowingly misappropriated
a trade secret (e.g., possessed, stole, transmitted, downloaded) and (2) did
so with the intent, “or knowing that the offense will benefit any foreign
government, foreign instrumentality, or foreign agent.” Section 1832 requires
that the government show that the defendant (1) knowingly misappropriated
a trade secret (e.g., possessed, stole, transmitted, downloaded) and (2) did so
“with intent to convert a trade secret ... to the economic benefit of anyone
other than the owner” and (3) “intending or knowing that the offense will,
injure any owner of that trade secret.”
As outlined above, the first part of the mens rea requirement in an EEA
case is that the defendant misappropriated the trade secret “knowingly.” As
noted in the legislative history, “A knowing state of mind with respect to an
element of the offense is (1) an awareness of the nature of one’s conduct, and
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177

(2) an awareness of or a firm belief in or knowledge to a substantial certainty
of the existence of a relevant circumstance, such as whether the information
is proprietary economic information as defined by this statute.” S. Rep. No.
104-359, at 16 (1996).
Based upon the legislative history, the government is not required to prove
that the defendant knew and understood the statutory definition of a trade
secret, as set forth in 18 U.S.C. § 1839(3), before acting. If the government
had to prove this, the EEA would be unnecessarily narrowed in its application,
which is contrary to the intent of Congress. Some violations would be nearly
impossible to prosecute in a number of factual scenarios, and would amount
to a willfulness mens rea requirement equivalent to that imposed for criminal
copyright infringement. For example, as part of protecting and limiting a trade
secret to those on a need to know basis, some companies do not divulge all
of the reasonable measures used to protect the trade secret, even within the
company. The individual stealing a trade secret may not know about these
reasonable measures safeguarding the trade secret.
The legislative history is clear that Congress intended to extend the reach
of the new federal offenses involving trade secret misappropriation. In fact,
the legislative history supports a “knew or should have known” mens rea
requirement:
It is not necessary that the government prove that the defendant
knew his or her actions were illegal, rather the government must
prove that the defendant’s actions were not authorized by the
nature of his or her relationship to the owner of the property
and that the defendant knew or should have known that fact.
H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,
4030-31 (emphasis added); 142 Cong. Rec. 27,117 (1996) (government must
show the defendant was “aware or substantially certain” he was misappropriating
a trade secret); see also United States v. Genovese, 409 F. Supp. 2d 253, 258
(S.D.N.Y. 2005) (discussing circumstances that would indicate that EEA
defendant knew the information was proprietary).
Congress did not require the government to show that the defendant
specifically was aware of each element of the definition of a trade secret
under § 1839(3) (e.g., that the defendant knew of specific reasonable
measures employed by the trade secret owner to protect the trade secret).
An opportunistic defendant, such as a company outsider, may not be fully
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aware of all of the company measures used to safeguard a trade secret, but
does know the proprietary information has value which he intends to use to
injure the owner of the trade secret. In other words, the defendant knowingly
misappropriated property (or proprietary information) belonging to someone
else without permission. In fact, in recognizing this point, the Sixth Circuit has
held that the “defendant need not have been aware of the particular security
measures taken by [the trade secret owner]. Regardless of his knowledge of
those specific measures, defendant knew the information was proprietary.”
Krumrei, 258 F.3d at 539 (affirming denial of motion to dismiss indictment as
void for vagueness); see also United States v. Roberts, No. 3:08-CR-175, 2009
WL 5449224, at *7 (E.D. Tenn. Nov. 17, 2009) (holding that “a defendant
must know that the information he or she seeks to steal is proprietary, meaning
belonging to someone else who has an exclusive right to it, but does not
have to know that it meets the statutory definition of a trade secret”), report
and recommendation adopted by, 2010 WL 56085 (E.D. Tenn. Jan. 5, 2010)
(quoting H.R. Rep. No. 104-788, at 12 (1996)).
An example demonstrates why it logically follows that the government is
not required to prove the defendant was aware of each of the sub-elements of
the trade secret definition under §1839(3), including his knowledge of the
trade secret owner’s specific reasonable measures taken to safeguard the trade
secret. Assume a hacker infiltrates a company’s corporate network and copies
sensitive research and development materials regarding a product the company
is developing for future release. The hacker may not know all the steps the
company has taken to protect its information such as requiring its employees
to sign non-disclosure agreements, employing physical security measures at its
offices or restricting sensitive information to its employees on a need-to-know
basis. However, the hacker did overcome the company’s electronic security
measures and knowingly misappropriated sensitive research and development
information, which he shared with others, either intending to benefit another
country or injure the owner of the trade secret. By the nature of his relationship
with the trade secret owner, the defendant is aware the property belongs to
someone else and that he misappropriated it without the authorization of the
company.
As already noted, in drafting the statute, Congress already included a
heightened intent standard. For example, § 1831 requires the government
to prove that the defendant intended or knew his actions would benefit a
foreign government, foreign instrumentality, or foreign agent. See generally
IV.Theft of Commercial Trade Secrets

179

Chung, 659 F.3d at 828 (discussing intent standard). The information must
in fact be a trade secret (unless, as discussed in Section B.6. of this Chapter,
attempt or conspiracy is charged). Additionally, the government must show
that the defendant knowingly stole, or without authorization appropriated,
took, carried away, possessed or concealed, or by fraud, artifice, or deception
obtained trade secret information.
Under §1832, the government must prove that the defendant intended
“to convert a trade secret ... to the economic benefit of anyone other than the
owner” of the trade secret, “intending or knowing that the offense will, injure
any owner of that trade secret,” and “knowingly” misappropriated the trade
secret information. As with § 1831, the information must in fact be a trade
secret (unless attempt or conspiracy is charged), and the government must show
that the defendant knowingly stole, or without authorization appropriated,
took, carried away, possessed or concealed, or by fraud, artifice, or deception
obtained trade secret information.
Under the last element (knowingly stole a trade secret), the government
must show that the defendant knowingly misappropriated (e.g., possessed or
concealed) information belonging to the trade secret owner; in other words,
the defendant knowingly misappropriated property belonging to someone else
without permission.
A recent district court opinion following a bench trial of a § 1831 case
directly addressed the mens rea requirement of the EEA, concluding that
the Government must prove that the defendant knew the information
he misappropriated was actually a trade secret (which included proof of
the defendant’s knowledge of the sub-elements of the definition of a trade
secret). See Chung, 633 F. Supp. 2d 1134 (bench trial conviction of a former
Boeing employee of economic espionage with the intent to benefit a foreign
government). The government asserted that the term “knowingly” modified
only the active conduct elements of the offense (“receives, buys, or possesses”)
and did not require proof that the defendant knew the information at issue
fell within the precise statutory definition of a trade secret, as set forth in the
EEA. Id.
Acknowledging that the statutory language of § 1831(a)(3) is not explicitly
clear whether the word “knowingly” modifies “trade secret,” the court
concluded that canons of statutory construction supported an interpretation
requiring proof that the defendant knew the information he received, possessed
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or bought was a trade secret. Id. at 1145. However, the court found that this
was not a difficult element to satisfy, at least based on the facts presented in the
Chung case:
A defendant charged with economic espionage will necessarily
have some understanding of the measures that have been taken
to protect the information he possesses. He will know whether
the facility he acquired the information from was gated. He
will know if the information in his possession has proprietary,
trade secret, or classified markings. If he is an employee, he
will know his company’s policy about whether documents
can be taken home. The Government need not prove that a
defendant knew all of the security measures taken to protect the
information. Likewise, proving that a defendant charged with
economic espionage knows that the information he possesses
has economic value is not exceedingly difficult. A spy does not
deal in worthless or readily ascertainable information.
Id. at 1145-46. Moreover, the court was clear that this element did not require
the government to prove that the defendant knew his conduct was illegal. Id.
In contrast to the district court, however, in considering the sufficiency of
the evidence, the Ninth Circuit did not require the defendant to know that
the information he misappropriated was actually a trade secret. See Chung,
659 F.3d at 824-28. Rather, the Ninth Circuit concluded that the evidence
was sufficient to support the trial conviction and that a trade secret had been
established.
Based on the statute and legislative history, noted above, the government
should be able to satisfy the “knowingly” requirement by showing that the
defendant knew or had a firm belief that the information was proprietary; was
valuable to its owner because it was not generally known to the public; and
that its owner had taken measures to protect it, that is, the information had the
attributes of a trade secret described in § 1839(3). See 18 U.S.C. § 1839(3);
H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,
4030-31 (“the government must prove that the defendant’s actions were not
authorized by the nature of his or her relationship to the owner of the property
and that the defendant knew or should have known that fact”); Krumrei, 258
F.3d at 539 (“defendant need not have been aware of the particular security
measures taken by” the trade secret owner; “Regardless of his knowledge of
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those specific measures, defendant knew the information was proprietary.”);
cf. Genovese, 409 F. Supp. 2d at 258 (discussing alleged circumstances that
would indicate that EEA defendant knew the information was proprietary).
Evidence that the defendant was aware of confidentiality agreements or
policies concerning the information, proprietary markings and other security
measures taken by the information’s owner will help to satisfy this element. On
the other hand, a person cannot be prosecuted under the EEA if “[a] person
[took] a trade secret because of ignorance, mistake, or accident.” 142 Cong.
Rec. 27,117 (1996). Nor could he be prosecuted if “he actually believed that
the information was not proprietary after [he took] reasonable steps to warrant
such belief.” Id.
4. Additional 18 U.S.C. § 1831 Element: Intent to Benefit a Foreign
Government, Foreign Instrumentality, or Foreign Agent
Under 18 U.S.C. § 1831, the second mens rea requirement is that the
defendant intended or knew that the offense would “benefit” a “foreign
government, foreign instrumentality, or foreign agent.” Under this section,
there is no requirement to show the government’s role to obtain the trade
secret (even where such proof may be present); the focus is on the defendant’s
knowledge that the offense would benefit or intent to benefit the “foreign
government, foreign instrumentality, or foreign agent.” See generally Chung,
659 F.3d at 828 (“Unlike the foreign agent count, which required evidence of
a foreign government’s direction or control, criminal liability under the EEA
may be established on the basis of Defendant’s intent alone.”; concluding that
the defendant’s intent was shown by his supplying technical information in
response to requests for such information from Chinese officials and by his
continuing possession of trade secret materials relating to the space shuttle and
the Delta IV Rocket), cert. denied, _ U.S. _ (2012). Consequently, normally
evidence regarding the conduct or intent of the foreign government or its
officials is not a requirement to establish a violation under § 1831.
A “foreign instrumentality” is “any agency, bureau, ministry, component,
institution, association, or any legal, commercial, or business organization,
corporation, firm, or entity that is substantially owned, controlled, sponsored,
commanded, managed, or dominated by a foreign government.” 18
U.S.C. § 1839(1). A “foreign agent” is “any officer, employee, proxy, servant,
delegate, or representative of a foreign government.” 18 U.S.C. § 1839(2). Thus,
the government must show that the defendant knew or had a firm belief that
misappropriation would benefit an entity controlled by a foreign government.
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If this “entity” is not a government entity per se, such as a business, there must
be “evidence of foreign government sponsored or coordinated intelligence
activity” with the entity. 142 Cong. Rec. 27,116 (1996).
The “benefit” to the foreign entity should be interpreted broadly. As the
House Report clarified:
The defendant did not have to intend to confer an economic
benefit to the foreign government, instrumentality, or agent, to
himself, or to any third person. Rather, the government need
only prove that the actor intended that his actions in copying or
otherwise controlling the trade secret would benefit the foreign
government, instrumentality, or agent in any way. Therefore, in
this circumstance, benefit means not only an economic benefit
but also reputational, strategic, or tactical benefit.
H.R. Rep. No. 104-788, at 11 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,
4030.
The requirement that the benefit accrue to a foreign government,
instrumentality, or agent should be analyzed very carefully. To establish
that the defendant intended to benefit a “foreign instrumentality,” the
government must show that the entity was “substantially owned, controlled,
sponsored, commanded, managed, or dominated by a foreign government.” 18
U.S.C. § 1839(1) (emphasis added). The EEA does not define “substantially,”
but the legislative history clarifies that the prosecution need not prove complete
ownership, control, sponsorship, command, management, or domination:
Substantial in this context, means material or significant, not
technical or tenuous. We do not mean for the test of substantial
control to be mechanistic or mathematical. The simple fact
that the majority of the stock of a company is owned by a
foreign government will not suffice under this definition, nor
for that matter will the fact that a foreign government only
owns 10 percent of a company exempt it from scrutiny. Rather
the pertinent inquiry is whether the activities of the company
are, from a practical and substantive standpoint, foreign
government directed.
142 Cong. Rec. 27,116 (1996).

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Thus, § 1831 does not apply to a defendant who intended who knew that
the offense would benefit a foreign corporation not substantially controlled by
a foreign government. Id. In such an instance, however, the defendant could
still be properly charged under 18 U.S.C. § 1832.
Before charges may be filed under § 1831, the Counterespionage Section
(CES), National Security Division (NSD) must approve. The USAM provides:
The United States may not file a charge under 18 U.S.C. § 1831
of the Economic Espionage Act (hereinafter the “EEA”), or use
a violation under § 1831 of the EEA as a predicate offense under
any other law, without the approval of the Assistant Attorney
General for the [National Security Division] (or the Acting
official if a position is filled by an acting official). Responsibility
for reviewing requests for approval of charges to be brought
under § 1831 rests with the Counterespionage Section which
shall obtain approval from the Assistant Attorney General for
the [National Security Division].”
USAM 9-59.100; see also USAM 9-2.400.
CCIPS is available to assist on legal or evidence gathering questions. DOJ
has strongly encouraged prosecutors to consult with CCIPS prior to filing
§ 1832 charges, under USAM 9-59.110 (“Prosecutors are strongly urged to
consult with the Computer Crime and Intellectual Property Section before
initiating prosecutions under 18 U.S.C. § 1832”), and the Memorandum from
the Attorney General, Renewal of Approval Requirement Under The Economic
Espionage Act of 1996, (March 1, 2002) (“I strongly urge prosecutors to
consult with the Computer Crime and Intellectual Property Section (CCIPS)
regarding § 1832 prosecutions prior to filing charges.”). CCIPS has provided
assistance on a number of cases raising trade secret and economic espionage
act issues.
For questions concerning charges under § 1831, contact the Department’s
Counterespionage Section, within the National Security Division, at (202) 5141187, or concerning other related issues in trade secret cases, CCIPS at (202)
514-1026.

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5. Additional 18 U.S.C. § 1832 Elements
a. Economic Benefit to a Third Party
Under 18 U.S.C. § 1832, the government must prove that the defendant’s
misappropriation was intended for the “economic benefit of anyone other than
the owner thereof.” 18 U.S.C. § 1832(a). The recipient of the intended benefit
can be the defendant, a competitor of the victim, or some other person or
entity.
One who misappropriates a trade secret but who does not intend for
anyone to gain economically from the theft cannot be prosecuted under 18
U.S.C. § 1832. This requirement differs from foreign-government economic
espionage under 18 U.S.C. § 1831, for which the economic or non-economic
nature of the misappropriation is immaterial. Compare 18 U.S.C. § 1831(a)
with § 1832(a).
b. Intent to Injure the Owner of the Trade Secret
Beyond demonstrating in a § 1832 case that the defendant both knew
that the information he took was proprietary and that he intended the
misappropriation to economically benefit someone other than the rightful
owner, the government must also prove that the defendant intended to “injure”
the owner of the trade secret. See 18 U.S.C. § 1832(a). This provision “does not
require the government to prove malice or evil intent, but merely that the actor
knew or was aware to a practical certainty that his conduct would cause some
disadvantage to the rightful owner.” H.R. Rep. No. 104-788, at 11-12 (1996),
reprinted in 1996 U.S.C.C.A.N. 4021, 4030.
By definition, for a trade secret to have value, it must confer a commercial
advantage to its owner. See 18 U.S.C. § 1839(3)(B); H. R. Rep. No. 104-788,
at 4. The trade secret loses its value once it is disclosed to another person for
the recipient’s benefit. See H. R. Rep. No. 104-788, at 11 (“[M]isappropriation
effectively destroys the value of what is left with the rightful owner.”).
Absent direct evidence of an individual’s intent or knowledge that the trade
secret’s owner would be injured by the theft, such as an admission, intent to
injure will typically be shown through the circumstances around the individual’s
conduct. Such circumstantial evidence of intent to injure could include, among
other things: lying to supervisors about post-employment plans; taking steps to
cover one’s tracks, such as destroying an employer’s original files after making
copies for use at a new job; disclosing the victim’s trade secret information to
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a competitor; using the victim’s trade secret information while working for a
competitor; and directing business to a new employer while still employed by
the victim. See, e.g., United States v. Martin, 228 F.3d 1, 12 (1st Cir. 2000)
(intent to injure shown by “plan of competition”).
As discussed in greater detail in Section C.1.a., below, lack of intent to
injure is a common defense that may pose particular challenges in cases where
a departing employee is apprehended or searched before he or she has the
opportunity to disclose the former employer’s trade secrets to the new employer.
c. Product or Service Used or Intended for Use in Interstate
or Foreign Commerce
On a charge of economic espionage under 18 U.S.C. § 1832, the
government must prove that the trade secret was “related to a product or service
used or intended for use in interstate or foreign commerce.” 18 U.S.C. § 1832
(as amended by the Theft of Trade Secrets Clarification Act, Pub. L. No. 112236, § 2, 126 Stat. 1627 (2012)); compare 18 U.S.C. § 1831 (containing no
comparable language).
Because the nexus to interstate or foreign commerce was likely included
to provide a basis for federal jurisdiction, the government does not have to
prove that they defendant knew that the trade secret was related to a product or
service used or intended for use in interstate or foreign commerce. The statute’s
plain text confirms this. The jurisdictional language quoted above is set off in
the statute by commas to qualify which types of trade secrets fall under the
statute. It precedes the word “knowingly,” thus putting it outside the elements
the government must prove the defendant knew.
The phrase “a product or service used or intended for use in interstate or
foreign commerce” includes trade secrets developed for existing products and
for future products. In the case of an existing product, this nexus can usually
be satisfied by evidence of the trade secret’s connection to the current product
and the product’s current or potential interstate or foreign sales.
By contrast, for products still being developed, § 1832 merely requires
proof that the trade secret was “related to a product or service … intended
for use in interstate or foreign commerce.” 18 U.S.C. § 1832(a). A defendant
might try to argue that a product still in the research and development stage
is not yet “intended for use in … interstate commerce,” 18 U.S.C. § 1832,
because the prototype itself is not “intended” for sale. But this argument would
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withhold the EEA’s protection when it was most needed. The research and
development phase is often when a trade secret is most valuable. Once the final
product embodying the trade secret is released to the public, the trade secret’s
value can be lost because of its availability to competitors who can examine the
product legitimately and obtain or deduce the trade secret for themselves.
In considering the interstate commerce element of § 1832 (prior to
the 2012 amendment), the court in United States v. Yang held that a patent
application had a sufficient nexus to interstate commerce because it involved
a product that generated $75-100 million in sales the previous year and it was
related to products produced and sold in the United States and Canada; and
also because the victim also had sought patents for the product in Europe. 281
F.3d 534, 551 & n.4 (6th Cir. 2002).
Prior to December 28, 2012, the “interstate commerce” element of
§ 1832—which required that the trade secret in question be “related to or
included in a product that is produced for or placed in interstate or foreign
commerce”—was arguably narrower than the amended language in two ways.
First, the previous language required a connection to a “product.” Second, it
required that the product be “produced for or placed in” interstate commerce,
rather than be related to a product or service that is “used or intended for use
in” interstate or foreign commerce.
In United States v. Aleynikov, the Second Circuit further narrowed what was
considered a product that is “produced for or placed in” interstate comment.
676 F.3d 71 (2d Cir. 2012).
In Aleynikov, a former Goldman Sachs programmer was convicted of
violating 18 U.S.C. § 1832 for stealing trade secret computer source code
related to Goldman Sachs’ high-frequency trading (HFT) platform. Id.
at 73. HFT involves using computer algorithms to quickly analyze market
movements and execute large numbers of stock trades in order to exploit tiny
price discrepancies. Id. Goldman Sachs used the software code at issue in
Aleynikov to facilitate the flow of information through its HFT system and to
monitor system performance. Id. at 74.
The district court denied defendant’s motion to dismiss, in which he
argued that the high-frequency trading system source code trade secret was
not sufficiently “related to or included in a ‘product’ that is ‘produced for or
placed in interstate and foreign commerce.’” United States v. Aleynikov, 737 F.
Supp. 2d 173 (S.D.N.Y. 2010), rev’d, 676 F.3d 71 (2d Cir. 2012). Although
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187

the statute did not define the term “product,” the district court concluded that
“[t]he ordinary meaning of ‘product’ is something that is the result of human
or mechanical effort or some natural process.” Id. at 178. The court explained
that the misappropriated source code satisfied this definition and further, was
expressly developed to enable the company to engage in interstate and foreign
commerce. Id. at 179.
On appeal, the Second Circuit reversed the district court’s decision. Noting
that Goldman Sachs had no intention of selling or licensing its HFT software
to anyone else, the Second Circuit concluded that “because the HFT [highfrequency trading] system was not designed to enter or pass in commerce,
or to make something that does, Aleynikov’s theft of source code relating to
that system was not an offense under the EEA.” Aleynikov, 676 F.3d at 82. In
construing the statute, the Second Circuit found that in order to give meaning
to both “produced for” and “placed in” interstate commerce, the product at
issue has to be either sold (i.e., placed in) in interstate commerce or produced
for such placement but for its stage of development (e.g., prototypes). Id. at
80-81.
In response to the Second Circuit’s decision in Aleynikov, the Theft of
Trade Secrets Clarification Act made clear that Congress intends 18 U.S.C.
§ 1832 to cover a broader array of trade secret thefts than the Second
Circuit’s narrow reading of the pre-2012 amendment version of the statute
would allow. See 158 Cong. Rec. S6978 (daily ed. Nov. 27, 2012), 2012 WL
5932548 (“The clarifying legislation that the Senate will pass today corrects
the [Aleynikov] court’s narrow reading to ensure that our federal criminal laws
adequately address the theft of trade secrets related to a product or service used
in interstate commerce.”) (statement of Sen. Leahy). This 2012 amendment
changed § 1832 to read as follows:
Whoever, with intent to convert a trade secret, that is related
to or included in a product that is produced for or placed in a
product or service used in or intended for use in interstate or
foreign commerce, …
This new statutory language contains two primary changes. First, it specifically
applies to both products and services. Second, it replaces the requirement
that the product be “produced for or placed in” interstate commerce (which
the Second Circuit in Aleynikov interpreted to require that the trade secret
information itself either enter or pass into commerce, or be used to “make
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something that does”) with a broader definition that requires only that the trade
secrets at issue be related to a product or service that is “used in or intended for
use in” interstate or foreign commerce.
6. Attempts and Conspiracies, Including the Impossibility Defense
The EEA punishes attempts and conspiracies to misappropriate trade
secrets. 18 U.S.C. §§ 1831(a)(4)-(5), 1832(a)(4)-(5). For an attempt, the
defendant must (1) have the intent needed to commit a crime defined by
the EEA, and (2) perform an act amounting to a “substantial step” toward
the commission of that crime. Hsu, 155 F.3d at 202. For a conspiracy, the
defendant must agree with one or more people to commit a violation, and one
or more of the co-conspirators must commit an overt act to effect the object of
the conspiracy. 18 U.S.C. §§ 1831(a)(5), 1832(a)(5). See generally Chung, 659
F.3d at 828-29 (listing elements).
To convict a defendant under the EEA of attempt or conspiracy, however,
the government is not required to prove that the information the defendant
sought actually constituted a trade secret. Hsu, 155 F.3d at 204.
In Hsu, the defendants were charged with attempting and conspiring
to steal the techniques for manufacturing an anti-cancer drug from BristolMeyers Squibb. The district court compelled the government to disclose to the
defendants the trade secrets at issue, on the grounds that the defendants were
entitled to demonstrate that the materials were not trade secrets in fact. United
States v. Hsu, 982 F. Supp. 1022, 1024 (E.D. Pa. 1997). On interlocutory appeal,
the Third Circuit disagreed, holding that to prove an attempt or conspiracy
under the EEA, the government need not prove the existence of an actual trade
secret, but, rather, that the defendants believed that the information was a trade
secret—regardless of whether the information was truly a trade secret or not—
and that they conspired in doing so. Hsu, 155 F.3d at 203 (“the government
need not prove that an actual trade secret was used …, because a defendant’s
culpability for a charge of attempt depends only on ‘the circumstances as he
believes them to be,’ not as they really are”). Thus, to prove an attempt, the
government need only prove “beyond a reasonable doubt that the defendant
sought to acquire information which he or she believed to be a trade secret,
regardless of whether the information actually qualified as such.” Id.
In reaching its conclusion the Third Circuit rejected the defendants’
contention that the government had to disclose the trade secrets so the
defendants could prepare a potential defense of legal impossibility. Although
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189

elsewhere the Third Circuit generally allowed the common-law defense of
legal impossibility in cases charging attempt, it found that the EEA clearly
showed Congress’s intent to foreclose an impossibility defense. Hsu, 155 F.3d
at 202 (“[T]he great weight of the EEA’s legislative history evinces an intent to
create a comprehensive solution to economic espionage, and we find it highly
unlikely that Congress would have wanted the courts to thwart that solution by
permitting defendants to assert the common law defense of legal impossibility.”).
The court found it significant that “[t]he EEA was drafted in 1996, more than
twenty-five years after the National Commission on Reform of the Federal
Criminal Laws had concluded that the abolition of legal impossibility was
already ‘the overwhelming modern position.’” Id. Lastly, the court noted that
if legal impossibility were “a defense to the attempted theft of trade secrets, the
government would be compelled to use actual trade secrets during undercover
operations.” Id. This would “have the bizarre effect of forcing the government to
disclose trade secrets to the very persons suspected of trying to steal them, thus
gutting enforcement efforts under the EEA.” Id. Therefore, the court held that
“legal impossibility is not a defense to a charge of attempted misappropriation
of trade secrets in violation of 18 U.S.C. § 1832(a)(4).” Id.
Nor is legal impossibility a defense to a charge of conspiracy to violate the
EEA. Because the basis of a conspiracy charge is the “conspiratorial agreement
itself and not the underlying substantive acts,” the impossibility of achieving
the conspiracy’s goal is irrelevant. See Hsu, 155 F.3d at 203 (citing United States
v. Jannotti, 673 F.2d 578, 591 (3d Cir.1982) (en banc)); see also United States v.
Wallach, 935 F.2d 445, 470 (2d Cir. 1991); United States v. LaBudda, 882 F.2d
244, 248 (7th Cir. 1989); United States v. Petit, 841 F.2d 1546, 1550 (11th Cir.
1988); United States v. Everett, 692 F.2d 596, 599 (9th Cir. 1982).
Hsu’s reasoning has been adopted by the Sixth Circuit in United States v.
Yang, 281 F.3d 534, 541-45 (6th Cir. 2002); the Seventh Circuit in United
States v. Lange, 312 F.3d 263, 268-69 (7th Cir. 2002); and the First Circuit in
United States v. Martin, 228 F.3d 1, 13 (1st Cir. 2000).

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C.

Defenses
1. Common Defenses
a. Lack of Intent to Convert a Trade Secret

A common defense in both civil trade secret misappropriation and criminal
EEA cases is that the defendant did not intend to convert a trade secret for the
benefit of someone other than its owner, but intended only to use publicly
available information or general skills and knowledge acquired throughout the
defendant’s career. The defendant’s intent to convert the trade secret is an essential
element of the offense; absent proof of wrongful intent beyond a reasonable
doubt, the defendant will be acquitted. See, e.g., United States v. Shiah, No. SA
CR 06-92 (C.D. Cal. Feb. 19, 2008) (unpublished), available at http://court.
cacd.uscourts.gov/CACD/RecentPubOp.nsf/ecc65f191f28f59b8825728f005
ddf4e/37d207fcb9587a30882573f400620823/$FILE/SACR06-92DOC.pdf.
This defense is rooted in Congress’ stated purpose to differentiate between trade
secrets, which are the subject matter of the EEA, and a person’s general skills
and knowledge, which are not. The House Report states that the EEA does
not apply “to individuals who seek to capitalize on the personal knowledge,
skill, or abilities they may have developed” in moving from one job to another.
H. R. Rep. No. 104-788, at 7 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,
4026. “The statute is not intended to be used to prosecute employees who
change employers or start their own companies using general knowledge and
skills developed while employed.” Id. “It is not enough to say that a person has
accumulated experience and knowledge during the course of his or her employ.
Nor can a person be prosecuted on the basis of an assertion that he or she was
merely exposed to a trade secret while employed. A prosecution that attempts
to tie skill and experience to a particular trade secret should not succeed unless
it can show that the particular material was stolen or misappropriated.” 142
Cong. Rec. 27, 117 (1996); see also United States v. Martin, 228 F.3d 1, 11 (1st
Cir. 2000) (emphasis in original) (Section 1832(a) “was not designed to punish
competition, even when such competition relies on the know-how of former
employees of a direct competitor. It was, however, designed to prevent those
employees (and their future employers) from taking advantage of confidential
information gained, discovered, copied, or taken while employed elsewhere.”);
Shiah, No. SA CR 06-92 (same).
A defendant successfully invoked this defense against § 1832 charges
during a bench trial in United States v. Shiah, No. SA CR 06-92. The defendant
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had been a product line manager at Broadcom, a semi-conductor company, for
approximately two-and-a-half years, where he had been exposed to technical,
marketing and price information on a variety of Broadcom products. Shortly
after receiving a negative performance evaluation, the defendant applied for
and was offered a similar position with a direct competitor. After applying for
the new job, but before tendering his resignation, the defendant went about
collecting electronic documents concerning matters he had worked on at
Broadcom. On the same day he intended to give notice of his resignation, the
defendant copied 4,700 files from his Broadcom laptop onto an external hard
drive.
At the defendant’s exit interview, Broadcom’s general counsel told the
defendant that he was forbidden from disclosing Broadcom’s confidential
information, which he said included technical documents, pricing lists and
a wider range of business information. The defendant was not shown a copy
of the confidentiality agreement he had signed when he started working at
Broadcom. After he began working for the competitor, the defendant accessed
several of the electronic Broadcom files he had kept while performing his new
job.
At trial, the defendant claimed he did not intend to use or disclose any
of the confidential Broadcom information contained in the thousands of files
he copied onto his external hard drive. Instead, he claimed he would rely on
his own internal filter to use only the non-confidential and publicly available
information in the thousands of documents he had copied. He considered this
information to be part of his “tool kit” of information he had developed during
the course of his career in the computer device industry. In support of this
argument, he pointed to evidence he had copied thousands of documents from
his prior employer before joining Broadcom. The defendant further testified
that of the Broadcom documents he accessed after leaving the company, he
used only the non-confidential information from them concerning aggregate
industry information.
Although the trial court found that the defendant’s pattern of access to the
Broadcom files while at his new job was “suspicious,” and that the evidence
indicated that it was more likely than not that defendant did intend to convert
trade secrets (which would have satisfied a preponderance standard), it concluded
that the government fell “just short” of proving the defendant’s intent to
convert the trade secrets beyond a reasonable doubt because his alternative
explanation for his conduct was sufficient to create a reasonable doubt. The
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court ultimately found that the defendant’s claimed “tool kit” defense was
consistent with the defendant’s past practices and with his wholesale copying
of files on his Broadcom laptop. The court also relied on the facts that many of
the files that the defendant copied were marketing documents that contained
both trade secret and non-confidential information and that there was no
evidence that the confidential portions of the documents were disclosed to the
defendant’s new co-workers. The court also found the defendant’s efforts to
acquire certain Broadcom documents before leaving the company were equally
consistent with defendant’s claimed efforts to address a point of criticism in his
recent performance evaluation that he lacked detailed product knowledge as
they were with a malicious intent.
The Shiah case underscores the importance of developing evidence of
intent to convert. Certainly the best evidence of such intent is direct evidence
of disclosure of the trade secrets to the new employer or other third parties.
However, evidence of disclosure is often not available when a defendant is
searched or arrested shortly after leaving his or her former employer with a
treasure trove of trade secrets in hand. Therefore, it will be necessary to develop
circumstantial evidence of the defendant’s behavior by looking to his conduct
and actions around the time of the misappropration.
b. Information is Not a Trade Secret
i. Owner Failed to Take Reasonable Measures to Protect Secrecy
Another common defense to EEA charges is that the trade secret’s owner
failed to take reasonable measures to protect the secrecy of the information
at issue. As discussed in Section B.3.a.v. of this Chapter, the government is
not required to prove that the victim took all available measures to keep its
information secret. The standard is whether measures the owner took were
reasonable under the circumstances.
Although there are no reported EEA cases in which this defense was
successful, the United States v. Shiah case provides detailed insight into the
factors at least one trial court considered when weighing this element. Although
the court ultimately found that the government had satisfied its burden
beyond a reasonable doubt, it expressed concern that the measures taken by
the trade secret owner “were barely sufficient to qualify as reasonable.” Shiah,
No. SA CR 06-92, at 31. The court focused its concerns not on the physical
or electronic security measures taken by Broadcom, but on its practices toward
its employees. For example, the court found that Broadcom had not provided
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the defendant with a copy of his confidentiality agreement after he signed it,
and did not explain the meaning of the agreement to him both at the outset
of his employment or during his exit interview. The court was also critical of
Broadcom’s failure to provide regular training to its employees on protecting
confidential information, and the absence of a comprehensive system in
place for designating which documents were and which documents were not
confidential. Finally, the court criticized Broadcom’s failure to examine the
defendant’s computer immediately upon his departure.
Despite these complaints, the court found that the deficiencies in the trade
secret owner’s practices were not so extensive as to qualify as unreasonable,
because, as a whole, the company’s measures were generally effective. This
conclusion was supported by evidence that Broadcom employees generally
understood what types of information the company considered to be
confidential, as well as evidence that the company had a reputation of being
“stingy” with its data protection. Id. at 36. As the reasonable measures element
is based on what steps were taken to keep the information secret from the
public, the court correctly noted that the owner is not required to keep the
information secret from the trade secret owner’s own employees, because
otherwise “‘no one could do any work.’” Id. at 32 (quoting Lange, 312 F.3d at
266). Nevertheless, the court stated that a company could fall short if it failed
to take reasonable measures to prevent a departing employee from taking trade
secrets with him upon termination.
The Shiah case, and the cases discussed in Section B.3.a.v. above suggest
that this defense will be successful only in situations where the victim’s security
environment is so lax that disclosures of confidential information are frequent
occurrences, or where a company fails to employ a combination of technical,
physical and contractual tools to protect its information.
ii. Information is Not Secret
The government bears the burden of proving, beyond a reasonable doubt,
that the alleged trade secrets derived economic value from not being generally
known or readily ascertainable to the public through proper means. Defendants
will often try to inject doubt into this element by presenting evidence that the
alleged trade secrets were generally known to persons in the industry or that
they had been publicly disclosed. This is often done through a defense expert
witness who is familiar with the industry or the technology at issue.

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In addition, the defendant may argue that the victim has publicly disclosed
some aspect of the alleged trade secret. For this reason, the prosecutor and
investigator should ascertain early on whether the purported trade secret was
ever disclosed, in whole or in part, and to what extent those disclosures affect
the information’s status as a trade secret. These issues are discussed further in
Donald M. Zupanec, Annotation, Disclosure of Trade Secret as Abandonment of
Secrecy, 92 A.L.R.3d 138 (2012) and 1 Roger M. Milgrim, Milgrim on Trade
Secrets §§ 1.05-1.06. The following is an overview.
•

Disclosure Through the Patent and Copyright Processes

Information that has been disclosed in a patent application can nevertheless
qualify as a trade secret between the time of the application’s submission and
the patent’s issuance, as long as the patent application itself is not published
by the patent office. Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 99 (6th
Cir. 1975) (citing Grant v. Raymond, 31 U.S. 218, 242 (1832)); see generally
Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 482-93 (1974) (noting distinct
intellectual property roles served by patents and trade secrets). The patented
process or device is no longer a trade secret once the application is published
or the patent is issued because publication of the application or patent makes
the process publicly available for all to see. Id. at 485 (citing 35 U.S.C. §
122 and 37 C.F.R. § 1.14(b)); see also On-Line Techs. v. Perkin-Elmer Corp.,
253 F. Supp. 2d 313, 323-27 (D. Conn. 2003). Patent applications filed in
the United States after November 29, 2000, are typically published after 18
months. At the beginning of the investigation, the prosecutor and investigator
should ask the victim for copies of all published patent applications and issued
patents covering the subject matter of the trade secret information to determine
whether it has been disclosed. See Chapter VII of this Manual.
A subsequent refinement or enhancement to the patented technology may
be a trade secret if it is not reasonably ascertainable from the published patent
itself. See United States v. Hsu, 185 F.R.D. 192, 200 (E.D. Pa. 1999).
Even where some elements are publicly known through a patent application,
trade secret status may be found where non-public elements are included. See,
e.g., Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1291 (11th
Cir. 2003) (concluding that beverage label marketing and production process
qualified as a trade secret since “nothing in the ... patent application dealt with
the production elements used to produce” the labels).

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Substantially the same analysis applies to information that has been
submitted to the United States Copyright Office for registration. Submitting
material to the Copyright Office can render it open to public examination and
viewing, thus destroying the information’s value as a trade secret, unless the
material is submitted under special procedures to limit trade secret disclosure.
See Tedder Boat Ramp Sys., Inc. v. Hillsborough County, Fla., 54 F. Supp. 2d 1300,
1303-04 (M.D. Fla. 1999); Religious Tech. Ctr. v. Netcom On-Line Commc’n
Servs., Inc., 923 F. Supp. 1231, 1255 n.28 (N.D. Cal. 1995); 1 Milgrim on
Trade Secrets § 1.06[6]-[9]. But see Compuware Corp. v. Serena Software Int’l,
Inc., 77 F. Supp. 2d 816 (E.D. Mich. 1999) (holding that material could
continue to be a trade secret even after its owner submitted it to the Copyright
Office without redaction, because the owner had taken other steps to keep it
secret and there was no evidence that it had become known outside the owner’s
business).
•

Disclosure Through Industry Publications or Conferences

Information can also lose protection as a trade secret through accidental
or intentional disclosure by an employee at a conference or trade show, or
in technical journals or other publications. See, e.g., Mixing Equip. Co. v.
Philadelphia Gear, Inc., 436 F.2d 1308, 1311 n.2 (3d Cir. 1971) (holding that
industrial mixing equipment charts and graphs lost trade secret status through
publication in trade journals).
•

Disclosure to Licensees, Vendors, and Third Parties

Information that has been disclosed to licensees, vendors, or third parties
for limited purposes can remain a trade secret under some circumstances,
including covering the disclosures by a non-disclosure agreement. See, e.g.,
Lange, 312 F.3d at 266; Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925
F.2d 174, 177 (7th Cir. 1991). For the security measures the trade secret owner
should take to maintain secrecy during those disclosures, see Section B.3.a.v.,
of this Chapter.
•

Disclosure Through Internet Postings

A trade secret can lose its protected status after it is posted anonymously
on the Internet, even if the trade secret was originally gathered through
improper means. See Religious Tech. Ctr. v. Netcom On-Line Communication
Servs., Inc., 923 F. Supp. 1231 (N.D. Cal. 1995). If the Internet posting causes
the information to fall into the public domain, a person who republishes the
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information is not guilty of misappropriating a trade secret, even if he knew
that the information was originally acquired by improper means. DVD Copy
Control Ass’n Inc. v. Bunner, 10 Cal. Rptr. 3d 185, 194 (Cal. Ct. App. 2004).
“[T]hat which is in the public domain cannot be removed by action of the
states under the guise of trade secret protection.” Id. at 195.
Disclosure over the Internet may not always strip away a trade secret’s
protection automatically. For example, in United States v. Genovese, the court
held that a trade secret could retain its secrecy despite a brief disclosure over
the Internet: “[A] trade secret does not lose its protection under the EEA if it is
temporarily, accidentally or illicitly released to the public, provided it does not
become ‘generally known’ or ‘readily ascertainable through proper means.’”
409 F. Supp. 2d 253, 257 (S.D.N.Y. 2005) (citing 18 U.S.C. § 1839(3)(B)).
Publication on the Internet may not destroy the trade secret’s status “if the
publication is sufficiently obscure or transient or otherwise limited so that it does
not become generally known to the relevant people, i.e., potential competitors
or other persons to whom the information would have some economic value.”
DVD Copy Control Ass’n Inc., 10 Cal. Rptr. 3d at 192-93.
•

Disclosure During Law Enforcement Investigations

Disclosures to the government to assist an investigation or prosecution of
an EEA case should not waive trade secret protections. See United States v.
Yang, 1999 U.S. Dist. LEXIS 7130 (N.D. Ohio Mar. 18, 1999) (holding that
victim’s disclosure of trade secret to government for use in a sting operation
under oral assurances that the information would not be used or disclosed for
any purpose unrelated to the case did not vitiate trade secret status). Disclosure
to the government is essential for the investigation and prosecution of illegal
activity and is expressly contemplated by the EEA. First, 18 U.S.C. § 1833(2)
specifically encourages disclosures to the government, stating: “[the EEA] does
not prohibit ... the reporting of a suspected violation of law to any governmental
entity of the United States ... if such entity has lawful authority with respect
to that violation.” Second, 18 U.S.C. § 1835 authorizes the court to “enter
such orders and take such other action as may be necessary and appropriate to
preserve the confidentiality of trade secrets, consistent with the requirements of
the Federal Rules of Criminal and Civil Procedure ... and all other applicable
laws.” See also infra Section D. of this Chapter. Section 1835 gives “a clear
indication from Congress that trade secrets are to be protected to the fullest
extent during EEA litigation.” Hsu, 155 F.3d at 197. Together, these sections
demonstrate Congress’s intent to encourage the reporting of an EEA violation.
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Laws other than the EEA similarly limit the Department of Justice’s
disclosure of trade secrets without the consent of the trade secret owner or the
express written authorization of senior officials at the Department. See, e.g., 28
C.F.R. § 16.21 (2012).
Information does not lose its status as a trade secret if the government
discloses it to the defendant as “bait” during a sting operation. See United States
v. Hsu, 185 F.R.D. 192, 199 (E.D. Pa. 1999). “To hold that dangling such
bait waives trade secret protection would effectively undermine the Economic
Espionage Act at least to the extent that the Government tries ... to prevent an
irrevocable loss of American technology before it happens.” Id.
•

Disclosure by the Original Misappropriator or His Co-Conspirators

The person who originally misappropriates a trade secret cannot immunize
himself from prosecution by disclosing it into the public domain. Although
disclosure of a trade secret may cause it to lose trade-secret status after the
disclosure, disclosure does not destroy trade-secret status retroactively.
Consequently, one who initiates the disclosure may be prosecuted, whereas
one who distributes the information post-disclosure may not, unless he was
working in concert with the original misappropriator. Cf. Underwater Storage,
Inc. v. United States Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966) (“We do
not believe that a misappropriator or his privies can ‘baptize’ their wrongful
actions by general publication of the secret.”); Religious Tech. Ctr., 923 F. Supp.
at 1256.
2. Parallel Development
The essence of the parallel development defense is that the defendant
independently, through its own efforts, developed the same information as the
putative victim, without access to the victim’s trade secrets. Indeed, the owner
of a trade secret, unlike the holder of a patent, does not have “an absolute
monopoly on the information or data that comprises a trade secret.” 142
Cong. Rec. 27,116 (1996). Other companies and individuals have the right to
discover the information underlying a trade secret through their own research
and hard work; if they do, there is no misappropriation under the EEA. Id.
Of course, this defense would prove ineffective where direct evidence of the
defendant’s acquisition of the trade secrets from the victim exists.

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3. Reverse Engineering
Similarly, a person may legally discover the information underlying a trade
secret by “reverse engineering,” that is, the practice of taking apart something
that was legally acquired to determine how it works or how it was made or
manufactured. See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476
(1974) (holding that the law does not protect the owner of a trade secret
from “discovery by fair and honest means, such as by independent invention,
accidental disclosure, or by so-called reverse engineering”); ConFold Pac., Inc.
v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (“[I]t is perfectly lawful
to ‘steal’ a firm’s trade secret by reverse engineering.”) (Posner, J.) (citations
omitted).
Although the EEA does not expressly address when reverse engineering
is a valid defense, its legislative history states that “[t]he important thing is to
focus on whether the accused has committed one of the prohibited acts of this
statute rather than whether he or she has ‘reverse engineered.’ If someone has
lawfully gained access to a trade secret and can replicate it without violating
copyright, patent or this law, then that form of ‘reverse engineering’ should be
fine.” 142 Cong. Rec. 27,116 (1996).
The mere fact that a particular secret could have been reverse engineered
after a time-consuming and expensive laboratory process does not provide a
defense for someone who intended to avoid that time and effort by stealing
the secret, unless the information was so apparent as to be deemed “readily
ascertainable,” and thus not a trade secret. See 4 Roger M. Milgrim, Milgrim
on Trade Secrets § 15.01[1][d][v]; Alcatel USA, Inc. v. DGI Techs., Inc., 166
F.3d 772, 784-85 (5th Cir. 1999) (holding that a competitor could not assert
reverse engineering defense after it had first unlawfully obtained a copy of the
software and then used the copy to reverse engineer); Pioneer Hi-Bred Int’l v.
Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (8th Cir. 1994) (stating that
fact “that one ‘could’ have obtained a trade secret lawfully is not a defense if
one does not actually use proper means to acquire the information”) (citations
omitted); Telerate Sys., Inc. v. Caro, 689 F. Supp. 221, 233 (S.D.N.Y. 1988)
(“[T]he proper focus of inquiry is not whether an alleged trade secret can
be deduced by reverse engineering but rather, whether improper means are
required to access it.”).

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To counter a defense of reverse engineering, prosecutors should establish
how the defendant obtained the trade secret. Proving misappropriation should
refute a claim of reverse engineering.
4. Legal Impossibility
The defense of legal impossibility has largely been rejected by courts in
EEA prosecutions. See Section B.6. of this Chapter.
5. Advice of Counsel
“There is no such thing as an ‘advice of counsel’ defense.” United States
v. Urfer, 287 F.3d 663, 665 (7th Cir. 2002) (Posner, J.) (charges of willfully
injuring federal property). Rather, “if a criminal statute requires proof that the
defendant knew he was violating the statute in order to be criminally liable for
the violation, and it is unclear whether the statute forbade his conduct, the
fact that he was acting on the advice of counsel is relevant because it bears on
whether he knew that he was violating the statute.” Id. at 666. In other words,
advice of counsel is a defense only if it negates the mens rea needed to prove a
violation.
Advice of counsel could conceivably negate an EEA defendant’s mens rea
in several ways. As is discussed in Section B.3.c. of this Chapter, the defendant
cannot be convicted unless he knew that he was misappropriating a trade
secret. Thus, the defendant’s mens rea might be negated if counsel advised him
either that the information in question was not a trade secret or that it was a
trade secret to which he could claim ownership.
To rely on an advice of counsel claim at trial, the defendant must first
provide “independent evidence showing (1) the defendant made full disclosure
of all material facts to his or her attorney before receiving the advice at issue;
and (2) he or she relied in good faith on the counsel’s advice that his or her
course of conduct was legal.” Covey v. United States, 377 F.3d 903, 908 (8th
Cir. 2004) (citations and alterations omitted); United States v. Munoz, 233 F.3d
1117, 1132 (9th Cir. 2000) (noting an advice of counsel instruction requires
proof that the defendant “fully disclosed to his attorney all material facts and
relied in good faith on the attorney’s recommended course of conduct”); see
also United States v. Butler, 211 F.3d 826, 833 (4th Cir. 2000) (same). Both
elements must be shown.
Under the full disclosure requirement, the information may not be
mischaracterized and all material facts must be provided. See, e.g., United States
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v. Munoz, 233 F.3d 1117, 1132 (9th Cir. 2000) (in mail fraud prosecution,
defendant was not entitled to an advice of counsel instruction where, among
other things, attorney’s opinion letter was based on misrepresentations that
investments were not advertised to general public even though defendant
“honestly believed the opinion letters written by the attorneys were accurate
and … did not understand the importance of not advertising … to the
general public”); United States v. Kenney, 911 F.2d 315, 322 (9th Cir. 1990)
(holding that defendant did not make a full disclosure where the defendant
mischaracterized a kickback as an interest-free loan); United States v. Conforte,
624 F.2d 869, 877 (9th Cir. 1980) (noting a material fact is any “fact[] to
which the advice pertains”); United States v. Stirling, 571 F.2d 708, 735 (2d Cir.
1978) (rejecting defendants’ argument that attorneys failed to ask sufficiently
probing questions because attorneys had “no obligation to ferret out proof of
wrongdoing.”). Under the good faith reliance requirement, the client must rely
on the recommended course of conduct and cannot act before receiving the
legal advice. See, e.g., United States v. Cheek, 3 F.3d 1057, 1061-62 (7th Cir.
1993) (advice of counsel instruction did not apply because defendant who had
been warned of illegality “merely continued a course of illegal conduct begun
prior to contacting counsel”); Conforte, 624 F.2d at 877 (rejecting a reliance on
counsel defense because, among other reasons, the defendant did not speak to
his attorney until after the crimes had been committed); see also United States v.
Polytarides, 584 F.2d 1350, 1353 (4th Cir. 1978) (good faith reliance on advice
of counsel defense was not available when defendant had taken significant steps
toward the illegal activity and had been warned of its illegality prior to seeking
advice of an attorney).
6. Claim of Right—Public Domain and Proprietary Rights
As is discussed in Section B.3.c. of this Chapter, the defendant cannot be
convicted unless he knew that the information he was misappropriating was
proprietary. Thus, the defendant’s mens rea might be negated if he believed in
good faith that he had a right to use the information, either because it was in
the public domain or because it belonged to him.
The former situation, information in the public domain, is discussed in
Section B.3.a.iii. (discussing how disclosure affects trade secret status).
The latter situation, when the accused acts under a proprietary claim of
right, can occur when two parties have a legitimate dispute over who owns
the trade secret. This type of dispute is most likely to occur after the parties
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201

developed technology together and their respective ownership interests are
unclear. In these circumstances, one party’s unilateral action with regard to
the trade secret might precipitate a criminal referral from the other party. Such
cases are rarely appropriate for criminal prosecution, especially if the putative
defendant acted on the advice of counsel. See Section C.5. of this Chapter.
Notwithstanding the passage of the EEA, many disputes about trade secrets are
still best resolved in a civil forum.
7. The First Amendment
The First Amendment provides no defense when the defendant’s speech
itself is the very vehicle of the crime. See, e.g., United States v. Morison, 844
F.2d 1057, 1068 (4th Cir. 1988) (rejecting defendant’s First Amendment
defense and upholding a conviction for a violation of 18 U.S.C. § 793 for
stealing secret government documents, noting that “[w]e do not think that
the First Amendment offers asylum ... merely because the transmittal was
to a representative of the press”); United States v. Rowlee, 899 F.2d 1275 (2d
Cir. 1990) (rejecting First Amendment defense against charges of tax evasion
conspiracy). In a prosecution similar to the theft of trade secrets under the
EEA, the First Amendment was held to provide no defense to a charge under
18 U.S.C. § 2314 for the interstate transportation of stolen computer files:
In short, the court finds no support for [the defendant’s]
argument that the criminal activity with which he is charged
... is protected by the First Amendment. Interpreting the
First Amendment as shielding [the defendant] from criminal
liability would open a gaping hole in criminal law; individuals
could violate criminal laws with impunity simply by engaging
in criminal activities which involve speech-related activity. The
First Amendment does not countenance that kind of end run
around criminal law.
United States v. Riggs, 743 F. Supp. 556, 560-61 (N.D. Ill. 1990).
In most instances, if the government can establish that the defendant
intended his misappropriation to benefit a third party economically, he should
have a hard time claiming that his disclosure of the trade secret was protected
by the First Amendment. In other words, where the defendant’s motivation
was pecuniary, the defendant’s argument that he disclosed the trade secret as
a public service or to educate the public should be significantly undermined.
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See DVD Copy Control Ass’n v. Bunner, 10 Cal. Rptr. 3d 185, 194-96 (Cal. Ct.
App. 2004).
Because the First Amendment does not protect speech that is criminal, the
government should seek to exclude evidence regarding that defense through an
appropriate motion in limine.
8. Void-for-Vagueness
Several defendants have challenged the EEA on grounds that it is vague or
otherwise unconstitutional. Thus far, all such challenges have been rejected.
In United States v. Hsu, 40 F. Supp. 2d 623 (E.D. Pa. 1999), the defendant
was charged with, among other things, conspiracy to steal trade secrets in
violation of 18 U.S.C. § 1832(a)(5) and attempted theft of trade secrets in
violation of 18 U.S.C. § 1832(a)(4). Hsu moved to dismiss, arguing that the
EEA was unconstitutionally vague in numerous respects.
In denying Hsu’s motion to dismiss, the court noted that a statute is not
unconstitutionally vague just because “Congress might, without difficulty, have
chosen ‘clearer and more precise language’ equally capable of achieving the end
which it sought.” Hsu, 40 F. Supp. 2d at 626 (quoting United States v. Powell,
423 U.S. 87, 94 (1975) (citation omitted)). Because the First Amendment
was not implicated, Hsu’s void-for-vagueness challenge could succeed only if
the EEA were vague as applied to his conduct and as applied to “the facts
of the case at hand.” Id. at 626-27. Hsu argued that the First Amendment
was implicated because the Bristol-Meyers Squibb “employee who aided the
Government ‘sting’ operation by posing as a corrupt employee [had] a right
freely to express himself and exchange information with the defendant, or
with anyone else he [thought was] a potential employer.” Id. at 627 (citations
omitted). The court disagreed. It noted first that Hsu lacked standing to raise
the victim’s employee’s purported First Amendment rights. Id. And even if Hsu
had standing, the court said, the employee had knowingly participated in a
government sting operation, not in a job interview with a potential employer.
Id. Therefore, no First Amendment interests were implicated. Id.
The court also rejected Hsu’s argument that the term in the pre-2012
amendment version of 18 U.S.C. § 1832 “related to or included in a product
that is produced for or placed in interstate or foreign commerce is unacceptably
vague.” Id. Prior First Amendment decisions disapproving of the term “related”
had no bearing on the use of “related to or included in” in the EEA, which the
IV.Theft of Commercial Trade Secrets

203

court found “readily understandable to one of ordinary intelligence, particularly
here, where the defendant appears to be well versed as to [the nature of the
technology at issue].” Id.
The court also concluded that the EEA’s definition of “trade secret” was
not unconstitutionally vague as applied to Hsu. As to the requirement that the
owner take “reasonable measures” to keep the information secret, the mere use
of the word “reasonable” or “unreasonable” does not render a statute vague. Id.
at 628. The court further noted that these terms were taken “with only minor
modifications” from the Uniform Trade Secrets Act, which had been adopted
in forty states and the District of Columbia and had also withstood a void-forvagueness attack. Id.
Also undermining Hsu’s void-for-vagueness challenge was his own
knowledge of the facts at the time of the offense. Hsu knew that Bristol-Meyers
Squibb had taken many steps to keep its technology secret. He had been told
on several occasions that the technology was proprietary to Bristol-Meyers
Squibb, could not be acquired through a license or joint venture, and could
be obtained only through an allegedly corrupt employee. The court therefore
held that he could not contend that the term “reasonable measures” was vague
as applied to him. Id.
Finally, the Hsu court concluded that the EEA was not void for vagueness
in qualifying that the information not be “generally known to” or “readily
ascertainable by” the public. The court concluded that the EEA’s use of
those terms was problematic because “what is ‘generally known’ and ‘readily
ascertainable’ about ideas, concepts, and technology is constantly evolving in
the modern age.” Id. at 630. Nonetheless, Hsu’s emails, telephone calls, and
conversations together showed that he believed that the information he sought
could not be acquired through legal or public means. Therefore, the court
concluded that the EEA’s definition of trade secret was not unconstitutionally
vague as applied to Hsu. Id. at 630-31.
Subsequent courts have upheld the EEA against similar constitutional
challenges. See United States v. Yang, 281 F.3d 534, 544 n.2 (6th Cir. 2002)
(rejecting defendants’ argument that the EEA would be unconstitutionally
vague if attempt and conspiracy charges need not be based on actual trade
secrets, because “[w]e have every confidence that ordinary people seeking to
steal information that they believe is a trade secret would understand that
their conduct is proscribed by the statute”); United States v. Kumrei, 258 F.3d
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535, 539 (6th Cir. 2001) (rejecting claim that the “reasonable measures” were
unconstitutionally vague); Chung, 622 F. Supp. 2d at 974 (concluding “the
term ‘reasonable measures’ is not unconstitutionally vague”); United States v.
Genovese, 409 F. Supp. 2d 253 (S.D.N.Y. 2005) (denying motion to dismiss
indictment as vague by defendant who argued that, having found confidential
source code on the Internet, he could not know whether the code was generally
known to the public or whether the code’s owners took reasonable measures
to keep it secret, and ruling that the government’s allegations established that
the defendant was on notice that the code was proprietary and any protective
measures had been circumvented).

D.

Preserving Confidentiality and the Use of
Protective Orders

One essential objective in any trade secret prosecution is to ensure that an
effective protective order is in place to safeguard against disclosure of the trade
secret during prosecution of the criminal case. The safeguards should cover
each phase of the prosecution, including discovery and any public proceedings,
such as a trial or sentencing hearing.
1. Overview
Protective orders, or other appropriate measures, are commonly used in
civil cases involving trade secrets. See, e.g., Fed. R. Civ. P. 26(c)(1)(g) (providing
for civil protective orders “requiring that a trade secret or other confidential
research, development, or commercial information not be revealed or be
revealed only in a specified way”); see also Burlington N.R.R. Co. v. Omaha
Pub. Power Dist., 888 F.2d 1228, 1232 (8th Cir. 1989) (reviewing contract in
camera without revealing trade secret); Canal Refining Co. v. Corrallo, 616 F.
Supp. 1035, 1045 (D.D.C. 1985) (granting plaintiff’s motion for protective
order to seal separate portions of affidavit designated as exhibit); see generally 3
Roger M. Milgrim, Milgrim on Trade Secrets § 14.02[4] (discussing protective
orders and other measures). Likewise, protective orders are regularly used in
EEA cases to protect against disclosure of trade secrets.
Congress emphasized the need for protective orders in criminal cases
involving trade secrets. See H. R. Rep. No. 104-788, at 4 (1996), reprinted
in 1996 U.S.C.C.A.N. 4021, 4022 (“The bill requires courts hearing cases
brought under the statute to enter such orders as may be necessary to protect
IV.Theft of Commercial Trade Secrets

205

the confidentiality of the information involved in the case.”); id. at 13, 4032
(“The intent of this section is to preserve the confidential nature of the
information and, hence, its value. Without such a provision, owners may be
reluctant to cooperate in prosecutions for fear of further exposing their trade
secrets to public view, thus further devaluing or even destroying their worth.”).
The legislative history underscores the importance of courts taking adequate
steps to protect trade secrets particularly in the early stages of prosecution even
before a determination that the information is a trade secret has been made:
We have been deeply concerned about the efforts taken by
courts to protect the confidentiality of a trade secret. It is
important that in the early stages of a prosecution the issue
whether material is a trade secret not be litigated. Rather, courts
should, when entering these orders, always assume that the material
at issue is in fact a trade secret.
142 Cong. Rec. 12,213 (Oct. 2, 1996) (Manager’s Statement) (emphasis
added).
The EEA contains a specific provision authorizing protective orders in
trade secret cases. Specifically, § 1835 provides:
[T]he court shall enter such orders and take such other action as
may be necessary and appropriate to preserve the confidentiality
of trade secrets, consistent with the requirements of the Federal
Rules of Criminal and Civil Procedure, the Federal Rules
of Evidence, and all other applicable laws. An interlocutory
appeal by the United States shall lie from a decision or order
of a district court authorizing or directing the disclosure of any
trade secret.
In addition to § 1835, which applies to EEA cases, prosecutors can
alternatively consider Fed. R. Crim. P. 16(d), which provides:
(1) Protective and Modifying Orders. At any time the court
may, for good cause, deny, restrict, or defer discovery or
inspection, or grant other appropriate relief. The court may
permit a party to show good cause by a written statement that
the court will inspect ex parte. If relief is granted, the court
must preserve the entire text of the party’s statement under seal.

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Rule 16(d) has been cited as an alternative legal basis for a protective
order in cases involving trade secrets. See, e.g., United States v. Hsu, 155 F.3d
189, 193 (3d Cir. 1998) (noting “the government filed a motion pursuant
to 18 U.S.C. § 1835 and Fed. R. Crim. P. 16(d)(1) for a protective order to
prevent the disclosure of the Bristol–Myers trade secrets allegedly contained
in those documents”). Although both provisions authorize protective orders,
their coverage and application are distinct. Rule 16(d) applies generally in
all criminal cases, whereas § 1835 applies only to cases charging economic
espionage, under 18 U.S.C. § 1831, and trade secret misappropriation, under
18 U.S.C. § 1832. Nonetheless, it is common for both legal bases, § 1835 and
Rule 16(d), to be cited in an application for a protective order.
In some cases, prosecutors may consider whether to charge the
misappropriation of proprietary information as trade secret misappropriation or
under other legal theories. See generally Section G. of this Chapter (considering
other alternative charges). Where trade secrets are involved, however, it is
recommended that prosecutors pursue charges under either §§ 1831 or 1832
of the EEA. One benefit from charging violations of the EEA is the ability to
use the protections afforded in § 1835 to safeguard trade secrets in the criminal
prosecution, such as the ability to seek an interlocutory appeal of a court order
to disclose a trade secret, as noted in the next Section.
2. Interlocutory Appeals
Section 1835 expressly allows the government to file “[a]n interlocutory
appeal … from a decision or order of a district court authorizing or directing
the disclosure of any trade secret.” This opportunity for prompt judicial review
of a district court decision provides an essential added layer of protection
against the disclosure of trade secrets.
Although the language permitting the government to seek interlocutory
appeal is broad and without time limits, as a practical matter, the issues
concerning court-ordered disclosure of a trade secret should be raised before
trial and certainly resolved before jeopardy attaches upon the swearing of the
jury.
Since the statute was enacted in 1996, the interlocutory provision has been
invoked in two cases, United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998), and
United States v. Ye, 436 F.3d 1117 (9th Cir. 2006). Both times the government
prevailed on appeal and averted disclosure of trade secret information, however,
for different reasons.
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United States v. Hsu (3d Cir. 1998)
The first case to address the use of protective orders under the EEA is
United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998). Hsu, also one of the first
cases prosecuted under the statute, presented an early test concerning the
disclosure of trade secret information and the new protections provided under
§ 1835. In Hsu, the trade secrets involved processes, methods, and formulas
for an anti-cancer drug known as Taxol. One defendant requested and offered
to pay for Taxol information, not realizing he was communicating with an
undercover agent. After the investigation, three defendants were charged with
attempted theft of trade secrets, and a conspiracy to steal trade secrets, along
with other charges. The defense moved for a copy of the documents revealed
at a key meeting with the undercover agent. The government requested a
protective order under § 1835 and Rule 16(d)(1) to prevent disclosure of the
trade secrets. The government asked the court to review the materials in camera
and to redact trade secret information. The government argued that since
inchoate crimes of attempt and conspiracy were charged, there was no need to
divulge the trade secrets. The defense insisted on receiving unredacted copies.
The district court agreed with the defense to adopt an order allowing “select
members of the defense team” with access to the documents. The court then
“‘encourage[d]’ the government to file an interlocutory appeal to clarify the
‘unsettled and important questions of law’ raised by this case.” Hsu, 155 F.3d at
193-94 (quoting district court opinion). The government filed an interlocutory
appeal under § 1835.
On appeal, the Third Circuit reversed the district court ruling after
concluding that the incomplete crimes of attempt and conspiracy did not
require actual proof of the trade secret. Hsu, 155 F.3d at 203-04; see also Section
B.6. of this Chapter, supra. After the case was remanded, the district court
concluded the defense was not entitled to receive the unredacted documents.
The materials were also unnecessary to support an entrapment or outrageous
government conduct defense. See United States v. Hsu, 185 F.R.D. 192, 198 &
n.19 (E.D. Pa. 1999) (analogizing that it is unnecessary in a drug case involving
attempt or conspiracy charges for the defense to have access to the drugs in the
case).
Although the Hsu case did not involve review of a trade secret case involving
actual misappropriation under the substantive provisions of the statute, 18
U.S.C. § 1832(a)(1)-(a)(3), the case demonstrates how the interlocutory appeal
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provision was used effectively to advert disclosure of trade secret information
pending appellate court review.
United States v. Ye (9th Cir. 2006)
In United States v. Ye, 436 F.3d 1117 (9th Cir. 2006), the second case to
address interlocutory appeal, decided eight years after Hsu, the government
sought an interlocutory appeal along with a writ of mandamus. In Ye, two
defendants were arrested as they tried to board a flight from San Francisco to
China. They were found to possess suspected trade secrets from four Silicon
Valley companies including technical schematics, information about design
methodology, computer aided design scripts, microprocessor specifications,
and other technology information. The two defendants were charged with
committing economic espionage, the second case charging violations of
§ 1831, along with trade secret misappropriation and other counts. Before
trial, the government provided the defense with “all the trade secret materials”
under a protective order, including “more than 8,800 pages of materials, which
‘describe the substance of each alleged trade secret.’” Ye, 436 F.3d at 1119.
The defense requested, and was granted, the opportunity to conduct pre-trial
depositions of several government expert witnesses to determine “what exactly
is being alleged to be the trade secret and why it is a trade secret in advance of
trial.” Id. After its motion for reconsideration was denied, the government filed
an interlocutory appeal under § 1835 and alternatively petitioned for a writ of
mandamus under the All Writs Act, 28 U.S.C. § 1651.
The Ninth Circuit concluded that it lacked jurisdiction over the § 1835
interlocutory appeal because “the purpose of the district court’s order was only
to clarify exactly which materials the government contends constitute the
protected trade secrets, and all relevant materials had already been turned over,
the district court’s order does not direct or authorize the ‘disclosure’ of trade
secrets as required by the plain language of § 1835.” Ye, 436 F.3d at 1121. In
considering the second basis for appellate review, however, the court found
that the government established “exceptional circumstances” to warrant a writ
of mandamus directing the district court to rescind its ruling. As the court
explained:
After weighing all five [writ of mandamus] factors, we conclude
that they lean strongly in favor of granting mandamus relief. The
district court’s order was ‘wholly unauthorized’ and ‘constitutes
a clear and very substantial departure from the fundamental
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principles governing criminal pretrial and trial procedures in
federal court.’ The government has demonstrated that it has
no alternative means of relief and will suffer harm that is not
correctable on appeal. Finally, the district court’s order raises
the new and important question of whether the EEA empowers
a court to authorize discovery depositions under Rule 15 in
order to ensure fairness and efficiency and effectively control
the dissemination of important trade secrets.
Ye, 436 F.3d at 1124 (citations omitted). Consequently, the government
prevailed in challenging the district court’s discovery order under this
alternative, although exceptional, ground.
3. Types of Protective Orders
Generally speaking, three types of protective orders may be appropriate
during different stages of a case:
•

•

•

First, a protective order may be necessary to discuss the case with
third parties before charges are filed. Under these circumstances, the
protective order, which is typically stipulated to by the parties, should
stipulate to jurisdiction in the event any disputes arise.
Second, after charges are filed, but before any trial, a protective order
is essential to ensure that the trade secret is used solely for preparation
of the defense and is not divulged to third parties unconnected with
the defense.
Third, a protective order may be required to govern the use of trade
secret evidence during a public trial.

Typically, the parties will enter into a stipulation and application for entry
of a protective order. Where agreement cannot be reached on selected issues, the
court may need to resolve them. It is not uncommon for an interim protective
order to be imposed during one stage with the understanding that it may be
modified to protect the trade secret and related information at another stage.
Protective orders may also vary depending on the issues in the case. For
example, a special protective order may be necessary for a case involving source
code. CCIPS has examples of each type of protective order which is available
to prosecutors. These model protective orders can be tailored to the facts and
issues of the particular case.

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As described in the following subsections, although protective orders may
vary depending on the trade secrets and issues involved in the case, there are
some key and consistent parameters that should be addressed in an application
for each type protective order. The protections are different before trial and
during trial.
a. Pre-Trial Protective Order Issues
Before trial, protective orders generally govern what information is covered
and who may access it without necessarily stipulating that the information is
in fact a trade secret. Because the defense may not wish to stipulate that the
items are in fact trade secrets, it is not uncommon for the parties to agree
that the designated items may constitute trade secrets or other confidential or
proprietary information, or that the designation merely serves to “to preserve
the confidentiality of trade secrets,” as required under 18 U.S.C. § 1835. At this
stage of the criminal case, the label assigned to the materials is less important
than ensuring that they are adequately safeguarded.
The pre-trial protective order will typically restrict access to the defense
litigation team solely for defending the case. One important feature of
protective orders is that anyone accessing the trade secret materials sign an
acknowledgment that they have read and understood the protective order and
agree to be bound by its terms, including sanctions for any violations. The
signed acknowledgments can be maintained by the government or filed with
the court. The protective order usually specifies that:
• the trade secret materials must be maintained in a secure manner and
may not leave a designated area;
• if maintained on a computer, the computer may not be connected to
the Internet;
• a copy of the protective order shall be kept with the copies of the
protected materials at all times;
• any filings of the trade secret materials shall be made filed under seal;
and
• the circumstances for the return of the trade secret materials upon the
conclusion of the case.
Another pretrial issue that may relate to a trade secret protective order
concerns defense use of a subpoena under Fed. R. Crim. P. 17(c) to obtain
further information about the trade secrets from the victim company.
Prosecutors should consider whether the subpoena seeks information protected
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211

by the protective order, or that has been previously provided. The courts have
also recognized that Rule 17(c) cannot be used as a means to obtain general
discovery. See, e.g., United States v. Hardy, 224 F.3d 752, 756 (8th Cir. 2000)
(denying Rule 17(c) subpoena where defendant was attempting to use it as a
discovery device, “which it is not”); United States v. Arditti, 955 F.2d 331, 345
(5th Cir. 1992) (Rule 17 “is not intended to provide an additional means of
discovery”); see also United States v. Ye, 436 F.3d 1117, 1124 (9th Cir. 2006)
(issuing writ of mandamus to rescind district court order compelling depositions
of government expert witnesses concerning trade secrets before trial).
Generally, Rule 17(c) subpoenas should not be issued by the court unless
the moving party meets its burden to demonstrate that (1) the documents
sought are both evidentiary and relevant, that is, admissible; (2) the documents
are not otherwise procurable before trial through reasonable diligence, (3)
the party cannot properly prepare for trial without early production; and (4)
the application is not intended as a general fishing expedition. United States
v. Nixon, 418 U.S. 683, 699-700 (1974). CCIPS can provide some sample
responses to defense requests for subpoenas under Rule 17(c).
b. Trial Protective Order Issues
Separate issues are involved by the presentation of evidence related to
the trade secret at trial. A protective order governing the use of information
during trial may apply more specifically to “trade secrets” as defined under
18 U.S.C. § 1839(3), and “trial protected material,” which includes trade
secret information and related confidential or proprietary information that
may reveal or disclose the trade secrets in this case. The scope of this coverage
protects against disclosure of not only trade secrets but information related to
the trade secret.
The protective order should impose a duty on the parties to notify the court
before introducing any protected material at trial. This obligation is important
to allow the court and parties to put appropriate and timely measures in place
to protect the confidentiality of trade secrets before such material is introduced
at trial.
Likewise, prosecutors should consider seeking to include instructions on
how trade secret materials may be presented during the trial. For example, the
protective order could limit access to exhibit binders exclusively to the jury,
the parties, and the court and require the exhibits to be retrieved after the
conclusion of the witness testimony. Additionally, the court display or other
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monitors shall be similarly confined. See, e.g., United States v. Roberts, 2010
WL 1010000, at *9 (E.D. Tenn. Mar. 17, 2010).
Special instructions may be necessary for witnesses and juries as well to
protect trade secret material. For example, the parties may instruct witnesses
not to disclose the protected materials during the course of their testimony
until and unless authorized by the court. Additionally, during the trial and
at the conclusion of the case, the jury may be instructed that they are not to
disclose or otherwise use the protected material which was presented during
the trial. CCIPS has sample trial protective orders for prosecutors.
c. Closing the Courtroom
Where closed proceedings are contemplated, other special requirements
apply. First, Department of Justice policy does not permit the closing of the
courtroom unless approved by the Deputy Attorney General. See 28 C.F.R.
§ 50.9; USAM 9-5.150. This presumption against closed proceedings may
be overcome upon a showing of certain factors and approval by the Deputy
Attorney General. A request for a closed proceeding is initially reviewed through
the Office of Enforcement Operations at (202) 305-4023. Id.. For a trial
example in which the courtroom was closed on a limited number of occasions,
see United States v. Aleynikov, 2010 WL 5158125, at *1 (S.D.N.Y. Dec. 14,
2010) (noting “Over the course of the eight day trial, the courtroom was closed
on seven occasions, most of them lasting no longer than 20 minutes.”), rev’d on
other grounds, 676 F.3d 71 (2d Cir. 2012).
The right to a public criminal trial, under the Sixth and First Amendments,
is not absolute and may be limited in certain circumstances. See Globe Newspaper
Co. v. Superior Court for the County of Norfolk, 457 U.S. 596, 603 (1982)
(noting “the press and general public have a constitutional right of access to
criminal trials.”); Waller v. Georgia, 467 U.S. 39, 46 (1984) (“[T]here can be
little doubt that the explicit Sixth Amendment right of the accused is no less
protective of a public trial than the implicit First Amendment right of the press
and public.”); see also Gannett v. DePasquale, 443 U.S. 368, 419-33 (1979)
(Blackmun, J., concurring in part and dissenting in part) (tracing the history
of the right to a public trial and citing cases where that right has been limited).
Although not absolute, the Supreme Court has held that, “proceedings cannot
be closed unless specific, on the record findings are made demonstrating
that ‘closure is essential to preserve higher values, and is narrowly tailored
to serve that interest.’” Press-Enterprise Co. v. Superior Court of California for
IV.Theft of Commercial Trade Secrets

213

Riverside, 478 U.S. 1, 13-14 (1986) (citations omitted) (holding there is a First
Amendment right of access to the transcript of a preliminary hearing); Waller,
467 U.S. at 48 (noting that (i) a “party seeking to close the hearing must
advance an overriding interest that is likely to be prejudiced,” (ii) “the closure
must be no broader than necessary to protect that interest,” and (iii) “the trial
court must consider reasonable alternatives to closing the proceeding”); see also
In re Copley Press, Inc., 518 F.3d 1022, 1028 (9th Cir. 2008) (applying factors,
concluding there was “no First Amendment right to access the transcripts of
the closed portions of the [plea] hearings on the motions to seal”). Accordingly,
if the proceedings are closed, appropriate findings, consistent with this case
law, should be made on the record.
4. Return of Trade Secrets Upon Conclusion of the Case
A final step to safeguard trade secrets is to provide for the return of the
trade secret material upon the conclusion of the case. The protective order
should direct that the defense assemble and return all materials and certify in
writing that the required procedures were completed.
To ensure defense counsel is aware of the responsibility to return all trade
secret material after a conviction, by trial or plea agreement, the prosecutor
should alert the defense and court that the materials will be requested for
return shortly after sentencing. One approach used in trade secret cases is to
send defense counsel a letter reminding them of the terms under the protective
order requiring the return of the trade secret materials upon the conclusion
of the case. The letter can request the material be returned at the sentencing
hearing or shortly afterwards. The sentencing memorandum can apprise the
court of this request which can be renewed at the sentencing hearing. The
court can resolve any disagreements under the terms of the protective order.

E.

Special Issues
1. Civil Injunctive Relief for the United States

The EEA authorizes the government to file a civil action to “obtain
appropriate injunctive relief against any violation of this chapter.” See 18
U.S.C. § 1836(a). Prosecutors should consider seeking injunctive relief to
prevent further disclosure of a trade secret by the defendant or third parties
during a criminal investigation, or as part of the judgment at the end of the
case.
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Prosecutors may even seek injunctive relief in matters that do not warrant
criminal prosecution if the victim is unable to do so. Note, however, that
most victims can obtain injunctive and monetary relief on their own through
state-law statutory and common-law remedies. For an extensive discussion of
injunctive relief in civil cases, see 4 Roger M. Milgrim, Milgrim on Trade Secrets
§ 15.02[1].
The civil remedy in § 1836 can be enforced only by the government.
Neither that section nor any other section of the EEA creates a private right
of action that can be enforced by private citizens. Cooper Square Realty, Inc. v.
Jensen, No. 04 Civ. 01011 (CSH), 2005 WL 53284 (S.D.N.Y. Jan. 10, 2005);
Barnes v. J.C. Penney Co., No. 3-04-CV-577-N, 2004 WL 1944048 (N.D. Tex.
Aug. 31, 2004), magistrate’s findings adopted, 2004 WL 2124062 (N.D. Tex.
Sept. 22, 2004).
2. Parallel Proceedings
In light of the significant overlap of elements in civil trade secret
misappropriation statutes and the EEA, it is often the case that a prosecutor on
an EEA criminal case is confronted with a parallel civil proceeding. A parallel
proceeding is simply
simultaneous or successive investigation or litigation of separate
criminal, civil, and administrative actions by different agencies,
different branches of government, or private litigants involving
a common set of facts.
Office of Legal Education, U.S. Dep’t of Justice, Federal Grand Jury Practice
§ 12.1 (2008).
In the context of an EEA prosecution, a parallel proceeding is most
likely to arise in the form of a concurrent or pre-existing civil trade secret
misappropriation case brought by the victim against one or more of the subjects
of the criminal investigation. Additionally, as explained above, § 1836(a) of
the statue expressly authorizes the Attorney General to bring a civil action
to “obtain appropriate injunctive relief against any violation of this chapter.”
These parallel civil proceedings will almost certainly generate evidence, in the
form of interrogatory responses, deposition or trial testimony, and responses
to document requests that would be of interest to a criminal prosecutor and
investigator investigating potential criminal violations of the EEA. And in
some cases, a victim / civil plaintiff may be more than willing to turn over this
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215

evidence to law enforcement. However, federal prosecutors need to be mindful
of both the strategic and ethical implications of parallel proceedings in an EEA
prosecution.
Prosecutors looking for more in depth guidance on parallel proceedings
across all types of federal criminal prosecutions should consult the Federal
Grand Jury Practice Manual.
a. Due Process and Prosecutorial Misconduct Considerations
There is nothing inherently wrong, ethically or legally, with parallel
proceedings, provided that each proceeding is conducted in good faith. See,
e.g., United States v. Kordel, 397 U.S. 1 (1970) (approving government’s parallel
civil and criminal proceedings against defendant); Abel v. United States, 362
U.S. 217 (1960) (lacking bad faith, mere cooperation of different branches of
the Department of Justice is neither illegitimate or unconstitutional); Securities
& Exchange Comm’n v. Dresser Indus., 628 F.2d 1368, 1374 (D.C. Cir. 1980)
(en banc) (“In the absence of substantial prejudice to the rights of the parties
involved, such parallel proceedings are unobjectionable under [United States]
jurisprudence.”). Misuse of a civil or criminal proceeding for the purpose of
benefitting the other proceeding, however, in addition to being improper,
may jeopardize the criminal proceeding. Such misuse may include affirmative
misstatements of fact or law, conduct involving dishonesty, fraud, deceit, or
misrepresentation, or impermissible communications with represented persons.
Professional responsibility questions with regard to a specific factual scenario
should be directed to the Department of Justice’s Professional Responsibility
Advisory Office at (202)514-0458.
As discussed below, three circuits have recently found, on somewhat similar
factual records, that parallel civil and criminal proceedings being handled by
separate divisions of the U.S. government were not conducted in bad faith, and
therefore did not violate due process. The key similarities in those cases were
that: (1) there were legitimate bases for the civil actions; (2) the defendants
were advised of their Fifth Amendment rights prior to making statements to
government questioners in the civil actions; and (3) no misleading statements
were made regarding the pendency of any criminal proceedings. But see United
States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005) (suppressing testimony
given by defendant at deposition in civil action by the Security and Exchange
Commission (SEC) where the SEC scheduled the deposition based on the
prosecutor’s request, and the prosecutor provided topics for the SEC to cover).
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In United States v. Stringer, 535 F.3d 929 (9th Cir. 2008) the Ninth Circuit
considered the conduct of a parallel civil SEC investigation, which led to a
criminal referral and prosecution by the U.S. Attorney’s Office in Oregon. At
the outset of the SEC’s investigation, the agency provided a standard letter to
the defendants, informing them that it may turn over evidence to criminal
investigators. The SEC also advised witnesses of their Fifth Amendment Rights
at the beginning of their depositions. The SEC referred the matter for criminal
prosecution to the U.S. Attorney’s Office early in its case, and provided
evidence to the criminal prosecution team during the course of its case. It also
scheduled depositions of subjects of the criminal investigation to be held in the
jurisdiction of the investigating U.S. Attorney’s Office, at the request of the
Assistant U.S. Attorney.
The district court granted defendant’s motion to dismiss the indictment
in which the defendant argued that the government used deceit and trickery
to obtain incriminating evidence and statements in the civil proceeding for
the criminal proceeding, in violation of Due Process. The Ninth Circuit
reversed the district court decision. Central to the Ninth Circuit’s ruling were
that the SEC made no affirmative misrepresentations and advised defendants
of possible criminal referrals at the outset of the civil proceeding. The court
further recognized:
It is significant to our analysis that the SEC began its civil
investigation first and brought in the U.S. Attorney later. This
tends to negate any likelihood that the government began the
civil investigation in bad faith, as, for example, in order to
obtain evidence for a criminal prosecution.
Id. at 939.
The Eleventh Circuit reached the same conclusion on similar facts in
United States v. Moses, 219 Fed. Appx. 847 (11th Cir. 2007), in which a
defendant in a criminal securities fraud prosecution argued, unsuccessfully,
that the government engaged in prosecutorial misconduct when the SEC
deposed him in its civil proceeding shortly before the U.S. Attorney’s Office
initiated its criminal case. As in Stringer, the Eleventh Circuit found that the
SEC had a legitimate purpose in pursuing its civil case, and the defendant was
advised of his Fifth Amendment rights prior to his deposition. Id. at 849-50. In
reaching its ruling, the court noted that “[i]t is well established that the federal

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217

government may pursue civil and criminal actions either ‘simultaneously or
successively.’” Id. at 849.
Similarly, in United States v. Posada Carilles, 541 F.3d 344 (5th Cir. 2008),
the Fifth Circuit Court of Appeals reversed the district court’s dismissal of a
false statements indictment arising out of the defendant’s statements during a
naturalization interview. There, the defendant, a high-profile Cuban dissident
who had been linked to a terrorist attack decades earlier, had illegally entered the
United States and applied for citizenship after he was detained. The immigration
officer met with federal prosecutors when preparing for the naturalization
interview. At the beginning of the interview, the immigration officer advised
the defendant of his Fifth Amendment rights, which the defendant invoked
at various times during the interview. Reversing the district court’s dismissal
of the indictment, the Fifth Circuit held that the immigration officer did not
have an affirmative duty to warn the defendant of the possibility of criminal
prosecution, provided that she did not make any material misrepresentations.
The court concluded: “the mere failure of a government official to warn that an
investigation may result in criminal charges does not constitute fraud deceit,
or trickery.” Id. at 355. Also key to the court’s ruling were the facts that the
defendant, and not the government, initiated the civil proceeding in which
he made the false statements while applying for citizenship; the defendant
was advised of his Fifth Amendment rights; and the U.S. Citizenship and
Immigration Services, like the SEC, is required by law to coordinate with
federal law enforcement.
It remains to be seen how a court would address similar types of interaction
between prosecutors and private parties who were pursuing a civil trade secret
action against the subjects of a criminal investigation. For example, it is uncertain
how a court would address a situation where the private litigant met with
prosecutors to prepare for depositions of subjects of the criminal investigation,
and asked subjects questions proposed by prosecutors. The Stringer, Posada
Carilles, and Moses cases suggest that a court would not find a due process
violation or prosecutorial misconduct, provided that the civil litigation was for
a legitimate, independent purposes, and no material, misleading statements
were made regarding the possibility of criminal prosecution.
b. Strategic Considerations
Apart from the ethical considerations outlined above, the potential for
parallel proceedings raises other strategic considerations in EEA prosecutions.
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While evidence gathered by a trade secret owner in a civil action may assist in
developing a criminal case, there is also the potential such evidence may be
damaging to a criminal investigation. For example, defendants in civil trade
secret proceedings are entitled to liberal discovery, which they use to poke holes
in both the secrecy of the alleged trade secret information and in the security
measures employed by the victim. Defendants may pursue extensive third-party
discovery designed to show that the allegedly secret information is, in fact,
known to a variety of entities. Similarly, depositions of employees of the owner
of the alleged trade secret information could result in conflicting testimony on
what they understand to be secret and not secret. Aggressive discovery could
also be employed in an attempt to harass employees of the victim company. In
such circumstances, the government may consider bringing a motion to stay
the parallel civil proceeding. See generally Federal Grand Jury Practice, § 12.9
(discussing motions to stay in detail). Of course, doing so will require making
the pending criminal investigation known to its subjects.
3. Significance of Electronic Evidence in Trade Secret
and Economic Espionage Act Cases
Electronic evidence has proven particularly significant in recent trade secret
and economic espionage cases. Because there are unique challenges in gathering
evidence concerning a scheme to misappropriate trade secrets, and some of the
evidence may be in a foreign country, electronic evidence may open a window
on the unlawful conduct.
a. Examples of Electronic Evidence
Examples of electronic evidence in a trade secret case include:
•
•
•
•
•
•

email or other communications on the victim company’s servers that
may demonstrate the misappropriation;
email or other communications or records obtained during a border
search of a laptop either entering or leaving the country;
records on storage media, such as a thumb drive, or portable hard drive
used to transfer or download trade secrets;
email or other communication records among the targets or coconspirators planning the misappropriation or discussing venture
capital or business formation to use the trade secret;
cell phone communications and records;
records obtained after seizing computers or hard drives of targets under
investigation.

IV.Theft of Commercial Trade Secrets

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In addition to supporting trade secret or economic espionage charges,
electronic evidence may also illuminate other legal theories that may apply in
the case, such as wire or computer fraud.
b. Developing an Electronic Evidence Case Plan
Given the importance of electronic evidence, it is important to develop an
Electronic Evidence Case Plan at the inception of the case. As part of the plan,
consider what types of electronic evidence may be involved. Also, consider how
many places the evidence may be found. For example, an email may be located
on the sender and recipient’s computer or provider’s server.
In such circumstances, investigators and prosecutors should consider
issuing a request to preserve electronic evidence pending further legal process.
Title 18, United States Code, § 2703(f )(1) provides:
A provider of wire or electronic communication services or a
remote computing service, upon the request of a governmental
entity, shall take all necessary steps to preserve records and
other evidence in its possession pending the issuance of a court
order or other process.
Under Section 2703(f )(2), the provider must retain the records, pending
legal process, “for a period of 90 days, which shall be extended for an additional
90-day period upon a renewed request by the governmental entity.”
For more detailed information on preserving and obtaining electronic
evidence see CCIPS’s manual on Searching and Seizing Computers and Obtaining
Electronic Evidence in Criminal Investigations.
c. Case Example: United States v. Meng
The importance of an Electronic Evidence Case Plan was underscored in
United States v. Meng, No. CR 5:04-20216-JF (N.D. Cal. Aug. 29, 2007), a
case involving economic espionage charges under 18 U.S.C. § 1831, trade
secret misappropriation under 18 U.S.C. § 1832, violations of the Arms
Export Control Act under 22 U.S.C. § 2778, and other related charges. The
defendant was suspected of misappropriating trade secrets from a Silicon Valley
company and using them in the People’s Republic of China. During a threeday visit to attend a conference in the United States, the defendant was arrested
based on preliminary evidence found during a border search of the defendant’s
laptop. Section 2703(f ) preservation requests were made for all identified
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email accounts shortly after the arrest was made. After an initial indictment
was obtained, a search warrant for the known email accounts was issued about
thirty days after the arrest and after preservation requests were made. .
After receiving the search warrant, one email provider advised that there
were about 980 emails in the account. The email provider noted that someone
using IP addresses in another country tried to delete approximately 966 emails,
during a time after the arrest was made in the case. See also Meng, No. CR 0420216-JF (N.D. Cal. Dec. 13, 2006) at ¶ 37 (Superseding Indictment alleging:
“It was further part of the conspiracy that defendant Xiaodong Sheldon Meng,
directed, and caused to be directed, another person unknown to the Grand Jury,
to delete approximately nine-hundred sixty-six (966) emails from Defendant
Xiaodong Sheldon Meng’s account at smeng~cn@yahoo.com.cn.”). Because a
preservation request had been made at the time of the arrest, the later attempt
to delete the emails was ineffective and the government was able to obtain all
of the contents. Without the preservation request, important evidence used
to further the investigation and support the prosecution would not have been
available in the case. Ultimately, the defendant pled guilty to violating § 1831
of the Economic Espionage Act and also the Arms Export Control Act. See
United States v. Meng, No. CR 5:04-20216-JF (N.D. Cal. Aug. 29, 2007).
4. Extraterritoriality
Federal criminal laws are generally presumed not to apply to conduct
outside the United States or its territories unless Congress indicates otherwise.
See, e.g., United States v. Corey, 232 F.3d 1166, 1170 (9th Cir. 2000). Congress
made an exception for the EEA. The EEA expressly “applies to conduct outside
the United States if—(1) the offender is a citizen or permanent resident alien
of the United States, or an organization organized under the laws of the United
States or a State or political subdivision thereof; or (2) an act in furtherance of
the offense was committed in the United States.” 18 U.S.C. § 1837.
5. Department of Justice Oversight
Before Congress passed the EEA, the Attorney General promised that all
EEA prosecutions under both §§ 1831 and 1832 would be approved by the
Attorney General, the Deputy Attorney General, or the Assistant Attorney
General of the Criminal Division during the first five years of the from the date
the statute was enacted. This requirement was codified at 28 C.F.R. § 0.64-5
and applied to the filing of complaints, indictments, and civil proceedings, but
not to search warrant applications or other investigative measures.
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221

After the five-year period elapsed, the approval process was modified.
Federal prosecutors may now prosecute 18 U.S.C. § 1832 offenses without
prior approval; however, the Attorney General strongly urges consultation with
the Computer Crime and Intellectual Property Section (CCIPS) before filing
§ 1832 charges because of CCIPS’s experience in handling these complex cases
and its access to valuable information and resources. CCIPS can be reached at
(202) 514-1026. CCIPS regularly provides assistance on EEA cases including
(1) indictment review; (2) suggestions on proving an intent to benefit a foreign
government (a key offense element) under 18 U.S.C. §§ 1831, 1839(1), (2);
(3) addressing proof issues in establishing a “trade secret” under 18 U.S.C.
§§ 1832, 1839(3); (4) early issue spotting and investigative steps to consider;
(5) identifying case strategies and suggesting alternative charging theories; (6)
advising on strategies to develop an Electronic Evidence Case Plan to obtain
electronic evidence; (7) providing sample pleadings, protective orders, and
other documents; and (8) trial and proof issues.
In contrast, the Attorney General renewed the prior approval requirement
for initiating prosecutions under 18 U.S.C. § 1831. Approval must be
obtained from the Assistant Attorney General for the National Security
Division, through the Counterespionage Section. USAM 9-2.400, 9-59.000.
The Counterespionage Section can be reached at (202) 233-0986.

F.

Penalties
1. Statutory Penalties
a. Imprisonment and Fines

Reflecting the more serious nature of economic espionage sponsored by a
foreign government, the maximum sentence for a defendant convicted under
18 U.S.C. § 1831 is 15 years’ imprisonment and a fine of $5 million, whereas
the maximum sentence for a defendant convicted under 18 U.S.C. § 1832 is
10 years’ imprisonment and a fine of $250,000 or twice the monetary gain or
loss, or both. See 18 U.S.C. §§ 1831(a), 1832(a). Similarly, organizations can
be fined up to $10 million for violating § 1831 or $5 million for violating
§ 1832. 18 U.S.C. §§ 1831(b), 1832(b).

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b. Criminal Forfeiture
The EEA provides for both civil and criminal forfeiture. In October
2008, Congress harmonized the criminal forfeiture provisions for all criminal
intellectual property violations, including violations of the EEA, in the
Prioritizing Resources and Organization for Intellectual Property (PRO-IP)
Act of 2008. The relevant provision is 18 U.S.C. § 2323. Section 1834 of the
EEA, which formerly governed criminal forfeiture for violations of the EEA
now simply references 18 U.S.C. § 2323.
The following property is subject to both criminal and civil forfeiture in a
case brought under the EEA:
(A) Any article, the making or trafficking of which, is prohibited
under ... [the EEA].
(B) Any property used, or intended to be used, in any manner
or part to commit or facilitate the commission of [a violation
of the EEA].
(C) Any property constituting or derived from any proceeds
obtained directly or indirectly as a result of the commission of
[a violation of the EEA].
18 U.S.C. § 2323(a)(1), (b)(1).
As a procedural matter, the government should allege forfeiture in the
indictment. For additional discussion of forfeiture in intellectual property
cases, see Chapter VIII of this Manual.
c. Restitution
The PRO-IP Act of 2008 referenced above also harmonized federal criminal
law regarding restitution in intellectual property offenses in a single section of
the criminal code, 18 U.S.C. § 2323(c). That section now expressly provides
that the court shall order a person who has been convicted of an EEA offense,
among other criminal intellectual property laws, “to pay restitution to any
victim of the offense as an offense against property referred to in 18 U.S.C. §
3663A(c)(1)(A)(ii).”
The Mandatory Victims Restitution Act of 1996 (“MVRA”), codified at
18 U.S.C. § 3663A, requires the court to order restitution in all convictions
for, among others, any “offense against property … including any offense
IV.Theft of Commercial Trade Secrets

223

committed by fraud and deceit,” and “in which an identifiable victim or victims
has suffered a physical injury or pecuniary loss.” See 18 U.S.C. § 3663A(c)(1)
(A)(ii), (B). For cases involving “damage to or loss or destruction of property
of a victim of the offense,” the MVRA requires that the defendant return the
property to its owner. If return of the property is “impossible, impracticable,
or inadequate,” the MVRA requires the defendant to pay an amount equal to
the property’s value on the date of its damage, destruction, or loss, or its value
at the time of sentencing, whichever is greater, less the value of any part of the
property that is returned. See 18 U.S.C. § 3663A(b)(1).
As noted, the mandatory restitution statute also applies to any offense where
“an identifiable victim or victims has suffered a physical injury or a pecuniary
loss.” 18 U.S.C. § 3663A(c)(1)(B). Restitution must be ordered “to each
victim in the full amount of each victim’s losses as determined by the court and
without consideration of the economic circumstances of the defendant.” 18
U.S.C. § 3664(f )(1)(A). Thus, to the extent a court has already calculated the
loss or injury actually suffered by a victim of trade secret theft in determining
the offense level under U.S.S.G. § 2B1.1, the same amount could be used
for restitution under the MVRA. For additional discussion of restitution in
criminal intellectual property cases, see Chapter VIII of this Manual.
2. Sentencing Guidelines
Issues concerning the Sentencing Guidelines are covered in Chapter VIII
of this Manual.

G.

Other Charges to Consider

When confronted with a case that implicates confidential proprietary
information, prosecutors may wish to consider other crimes in addition to or
in lieu of EEA charges. Section 1838 of the statute contemplates that other
appropriate remedies may be considered, as the statute does not “preempt or
displace any other remedies, whether civil or criminal, provided by United
States Federal, State, commonwealth, possession, or territory law for the
misappropriation of a trade secret.” Other charges that may be appropriate,
depending on the fact of the case, may include:
•

224

Disclosing government trade secrets, 18 U.S.C. § 1905, which
punishes government employees and contractors who, inter alia,
“divulge” or “disclose” trade secrets or certain other information to
Prosecuting Intellectual Property Crimes

•

the extent not authorized by law. United States v. Wallington, 889 F.2d
573 (5th Cir. 1989) (affirming defendant’s conviction for running
background checks on several people whom the defendant’s friend
suspected of dealing drugs). Defendants face a fine, a year in prison,
and removal from office or employment. Congress clarified that
Customs and Border Protection (CBP) may disclose to rights-holders
information on suspected counterfeit products to determine if the
product is prohibited from importation. See § 818(g) of the National
Defense Authorization Act for FY2012 (NDAA), H.R.1540, Pub. L.
No. 112-81, 125 Stat. 1298 (Dec. 31, 2011) (also noting that this
provision will expire on the date the Customs Facilitation and Trade
Enforcement Reauthorization Act of 2012 is enacted).
Unlawfully accessing or attempting to access a protected computer
to obtain information, 18 U.S.C. § 1030(a)(2), (b), for access to a
computer used for interstate or foreign commerce or by or for a financial
institution or the United States government, 18 U.S.C. § 1030(e)(2).
The term “information” is to be construed broadly and need not be
confidential or secret in nature. S. Rep. No. 104-357, at 7 (1996).
“‘[O]btaining information’ includes merely reading it. There is no
requirement that the information be copied or transported.” Id. A
violation is a misdemeanor unless it was committed for commercial
advantage or private financial gain, to further any tortious or criminal
act, or if the information’s value exceeds $5,000. See 18 U.S.C. § 1030(c)
(2).
For offenses on or after September 26, 2008, § 1030(a)(2)(C) was
amended (1) to remove the requirement that “the conduct involved an
interstate or foreign communication” and (2) to broaden the definition
of “protected computer” to include those used in or affecting interstate
or foreign commerce or communication. See Former Vice President
Protection Act, Pub. L. No. 110-326, 122 Stat. 3560 (2008).

•

Note: There presently is a split in the circuits in construing the terms
“exceed[ing] authorized access” to information under the Computer
Fraud and Abuse Act. Depending on the facts of the case, CCIPS can
provide current guidance on this issue.
Unlawfully accessing or attempting to access a protected computer
to commit fraud, 18 U.S.C. § 1030(a)(4), (b), where the defendant
“knowingly and with intent to defraud,” accessed or attempted to access

IV.Theft of Commercial Trade Secrets

225

a protected computer without authorization, or in excess of authorized
access, and by means of such conduct furthered the intended fraud
and obtained anything of value, “unless the object of the fraud and
the thing obtained” was computer time worth less than $5,000. What
constitutes “fraud” under § 1030(a)(4) is defined broadly. See 132
Cong. Rec. 7,189 (1986) (“The acts of ‘fraud’ that we are addressing
in proposed section 1030(a)(4) are essentially thefts in which someone
uses a [protected computer] to wrongly obtain something of value from
another”); see also Shurgard Storage Centers, Inc., v. Safeguard Self Storage,
Inc. 119 F. Supp. 2d 1121, 1126 (W.D. Wash. 2000) (holding that the
word “fraud” as used in § 1030(a)(4) simply means “wrongdoing” and
does not require proof of the common-law elements of fraud). EEA
charges, which generally involve some level of deception and knowing
wrongdoing, will often qualify as fraud. Harming a victim’s “goodwill
and reputation” provides a defendant with something of “value.” See,
e.g., In re America Online, Inc., 168 F. Supp. 2d 1359, 1380 (S.D. Fla.
2001).
For more information on offenses involving 18 U.S.C. § 1030 generally,
see CCIPS’s manual Prosecuting Computer Crimes.
•

226

Mail or wire fraud, 18 U.S.C. §§ 1341, 1343, 1346, for schemes that
use the mail or wires to defraud another of property or confidential and
proprietary information. See, e.g., United States v. Martin, 228 F.3d 1,
16-19 (1st Cir. 2000) (affirming mail and wire fraud convictions for
schemes to obtain confidential business information); Howley, 2013
WL 399345, at *5 (affirming wire fraud convictions for taking and
emailing photographs containing confidential proprietary information
after promising to not take photographs in non-disclosure agreement).
A scheme to defraud another of property includes intangible property,
such as confidential, nonpublic, prepublication, and proprietary
information. Carpenter v. United States, 484 U.S. 19 (1987) (holding
that financial journalist’s trading on information gathered for his
newspaper column defrauded the newspaper of its right to the
exclusive use of the information); United States v. Wang, 898 F. Supp.
758, 760 (D. Colo. 1995) (holding that 18 U.S.C. § 1343 applies not
just to physical goods, wares, or merchandise, but also to confidential
computer files transmitted by wire); United States v. Seidlitz, 589 F.2d
152 (4th Cir. 1978) (holding that data the defendant downloaded from
Prosecuting Intellectual Property Crimes

his former employer’s computer system qualified as property under the
wire fraud statute and a trade secret).
Mail and wire fraud convictions stemming from the theft of trade
secrets have been upheld even when charges under the National
Transportation of Stolen Property Act (hereinafter “NTSP act”) were
not applicable based on the facts of the case, 18 U.S.C. §§ 2314-15,
see infra, were rejected. See, e.g., Abbott v. United States, 239 F.2d 310
(5th Cir. 1956) (affirming § 1341 conviction, but finding insufficient
evidence to sustain conviction under 18 U.S.C. § 2314 because
government failed to prove market value of map or how or who caused
the map to be transported). The mail and wire fraud statute’s broader
scope results from its concern for the theft of “property” generally, as
compared to the NTSP Act’s focus on the arguably narrower class of
“goods, wares and merchandise” used in §§ 2314 and 2315. See, e.g.,
Wang, 898 F. Supp. at 760 (holding that 18 U.S.C. § 1343 applies to
items other than physical goods, wares, and merchandise).
Note: In 2010, in a series of cases, Skilling v. United States, 130 S.
Ct. 2896 (2010); Black v. United States, 130 S.Ct. 2963 (2010); and
Weyhrauch v. United States, 130 S. Ct. 2971 (2010), the Supreme Court
held that the honest services fraud statute, 18 U.S.C. § 1346, applies
only to bribery and kickback schemes. For a more detailed discussion
of 18 U.S.C. §§ 1341 and 1343, refer to USAM 9-43, and contact the
Fraud Section of the Criminal Division at (202) 514-7023 for further
information and guidance.
•

Criminal copyright infringement, 17 U.S.C. § 506 and 18 U.S.C.
§ 2319, when the defendant stole and reproduced or distributed
copyrighted information. The Copyright Act does not preempt trade
secret or related charges if the defendant stole confidential copyrighted
material. See Wang, 898 F. Supp. at 760-61 (holding that Copyright
Act did not preempt wire fraud prosecution for stealing confidential
copyrighted material); Association of Am. Med. Colls. v. Princeton
Review, Inc., 332 F. Supp. 2d 11, 22-24 (D.D.C. 2004) (analyzing
issue and collecting cases).

•

Interstate transportation and receipt of stolen property or goods,
the National Transportation of Stolen Property Act (hereinafter “NTSP
Act”), which punishes “[w]hoever transports, transmits, or transfers
in interstate or foreign commerce any goods, wares, merchandise,

IV.Theft of Commercial Trade Secrets

227

securities or money, of the value of $5,000 or more, knowing the same
to have been stolen, converted or taken by fraud,” 18 U.S.C. § 2314,
and “[w]hoever receives, possesses, conceals, stores, barters, sells, or
disposes” stolen property that has crossed a state or federal boundary
after being stolen, 18 U.S.C. § 2315.
Assuming that particular stolen items qualify as goods, wares, or
merchandise, the courts agree that §§ 2314 and 2315 apply when a
defendant steals a tangible object — for example, a piece of paper or a
computer disk — that contains intellectual property. See, e.g., United
States v. Martin, 228 F.3d 1, 14-15 (1st Cir. 2000); United States v.
Walter, 43 M.J. 879, 884 (N.M. Ct. Crim. App. 1996) (“[C]ourts
will include intangible property under the [NTSP] act when tied to
tangible property and when the intangible property possesses some
business value.”); United States v. Brown, 925 F.2d 1301, 1308 n.14
(10th Cir. 1991) (holding that even though § 2314 does not apply to
theft of intangible property through intangible means, § 2314 would
apply to the theft of a piece of paper bearing a chemical formula, even if
the paper’s intrinsic value were insignificant and the item’s overall value
was almost wholly derived from the intangible intellectual property
contained in the chemical formula) (citing United States v. Stegora,
849 F.2d 291, 292 (8th Cir. 1988)) (dictum); United States v. Lyons,
992 F.2d 1029, 1033 (10th Cir. 1993) (holding that the defendant’s
theft of “software in conjunction with the theft of tangible hardware
distinguishes this case from Brown. Brown recognizes that the theft
of intangible intellectual property in conjunction with the theft of
tangible property falls within the ambit of § 2314.”); United States v.
Lester, 282 F.2d 750 (3d Cir. 1960) (holding that originals and copies
of geophysical maps made by defendants on the victim’s own copying
equipment, with the victim’s own supplies, are covered under § 2314);
United States v. Seagraves, 265 F.2d 876 (3d Cir. 1959) (facts similar
to Lester); United States v. Greenwald, 479 F.2d 320 (6th Cir. 1973)
(original documents containing trade secrets about fire retardation
processes); cf. Hancock v. Decker, 379 F.2d 552, 553 (5th Cir. 1967)
(holding that state conviction for theft of 59 copies of a computer
program was supported by similar federal court rulings under § 2314)
(citing Seagraves, 265 F.2d at 876).

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Prosecuting Intellectual Property Crimes

Courts are divided, however, on whether the NTSP Act applies to a
defendant who transfers intangible property through intangible means,
such as electronic data transmission or copying from one piece of paper
to another. One view is that it does not. In Brown, the defendant was
charged with transporting (by means unknown) the source code of a
computer program from Georgia to New Mexico, but the government
could not prove that the defendant had copied the source code onto
the victim’s diskettes or that he possessed any of the victim’s tangible
property. Brown, 925 F.2d at 1305-09. The Tenth Circuit held that 18
U.S.C. § 2314 did not cover “[p]urely intellectual property,” such as
the source code appropriated by the defendant: “It can be represented
physically, such as through writing on a page, but the underlying,
intellectual property itself, remains intangible” and thus “cannot
constitute goods, wares, merchandise, securities or moneys which have
been stolen, converted or taken within the meaning of §§ 2314 or
2315.” Id. at 1307-08. In reaching its decision, the court relied on
Dowling v. United States, 473 U.S. 207 (1985), which held that property
that is “stolen” only in the sense that it is copyright infringing does not
fall under the NTSP Act. However, the Brown court recognized that
§ 2314 may apply where the item is tangible: “for § 2314 to apply there
must be some tangible item taken, however insignificant or valueless it
may be, absent the intangible component.” Brown, 925 F.2d at 130708 n.14. The Tenth Circuit has noted this distinction in other cases.
See, e.g., United States v. Lyons, 992 F.2d 1029, 1033 (10th Cir. 1993)
(in a conviction for transporting stolen computer hardware, the value
of the stolen computer software could be considered for sentencing
notwithstanding Brown; “The fact that Mr. Lyons stole the software in
conjunction with the theft of tangible hardware distinguishes this case
from Brown.”), petition for reh’g denied, 997 F.2d 826 (10th Cir. 1993).
More recently, the Second Circuit reversed a conviction based on the
transmission of stolen source code because “the theft and subsequent
interstate transmission of purely intangible property is beyond the scope
of ” § 2314. United States v. Aleynikov, 676 F.3d 71, 77 (2d Cir. 2012).
See also Section F. of Chapter II (discussing application of Dowling to
charging 18 U.S.C. § 2314 for intellectual property crimes).
Other cases have approved of NTSP Act prosecutions for theft of
intangible property including by intangible means. See, e.g., United
IV.Theft of Commercial Trade Secrets

229

States v. Alavi, No. CR07–429–PHX–NVW, 2008 WL 1971391 (D.
Ariz. May 2, 2008) (denying motion to dismiss § 2314 count based on
the claim that computer software is not “goods, wares, merchandise,
securities or money”; distinguishing application of Dowling); United
States v. Riggs, 739 F. Supp. 414, 420-21 (N.D. Ill. 1990) (Rejecting
defendant’s “disingenuous argument that he merely transferred
electronic impulses [albeit impulses containing computerized text files
belonging to Bell South] across state lines.… This court sees no reason
to hold differently simply because [defendant] stored the information
inside computers instead of printing it out on paper. In either case, the
information is in a transferrable, accessible, even salable form.”)

230

•

Arms Export Control Act, 22 U.S.C. §§ 2778, and the International
Traffic in Arms Regulations (ITAR), 22 C.F.R. §§ 120-130, which
prohibits the export or import of U.S. Munitions List items without
obtaining a license from the Secretary of State. See, e.g., United States
v. Reyes, 270 F.3d 1158, 1169 (7th Cir. 2001) (“Conviction on this
count required that the government prove beyond a reasonable doubt
that Reyes willfully exported or attempted to export an item on the
United States Munitions List without having first obtained a license.”).
“Defense article” includes items or technical data designated on the
United States Munitions List, and “technical data recorded or stored
in any physical form, models, mockups, or other items that reveal
technical data directly relating to items designated [in the Munitions
List].” 22 C.F.R. § 120.6. Under USAM 9-90.620 Arms Export
Control Act—22 U.S.C. § 2778, “[u]nless the unlicensed shipment
has no relevance to the foreign relations of the United States (e.g.,
smuggling small quantities of weapons), prosecution of violations of
the Arms Export Control Act should not be undertaken without prior
approval of the National Security Division. In United States v. Meng,
No. CR 04-20216-JF (N.D. Cal. Aug. 29, 2007) the defendant was
convicted under both the Arms Export Control Act and § 1831 of the
Economic Espionage Act.

•

False Statement, under 18 U.S.C. § 1001, may apply where the
defendant makes a material false statement to an agent during the
investigation. A statement is material under § 1001 if it has a “natural
tendency to influence, or [be] capable of influencing, the decision of
the decisionmaking body to which it was addressed.” United States v.
Prosecuting Intellectual Property Crimes

Gaudin, 515 U.S. 506, 509 (1995). See generally Chung, 659 F.3d at
830 (in EEA prosecution, finding sufficient evidence at trial to support
false statement conviction based on the defendant’s false statement that
“his boss ... had given him permission to take work documents home”).
•

State and local charges. Many states have laws that specifically address
the theft of information. See, e.g., Uniform Trade Secrets Act. If a state
lacks a specific trade-secret law, its general theft statutes may apply.
Section 1838 of the EEA contains a non-preemption provision which
expressly recognizes that other federal and state remedies may apply
“for the misappropriation of a trade secret.”

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232

Prosecuting Intellectual Property Crimes

V.
Digital Millennium
Copyright Act—
17 U.S.C. §§ 1201-1205
A.

Introduction
1. DMCA’s Background and Purpose

With the advent of digital media and the Internet as a means to distribute
such media, large-scale digital copying and distribution of copyrighted material
became easy and inexpensive. In response to this development, and to prevent
large-scale piracy of digital content over the Internet, in 1997 the World
Intellectual Property Organization (WIPO) responded with two treaties, the
Copyright Treaty and the Performances and Phonograms Treaty, to prohibit
pirates from defeating the digital locks that copyright owners use to protect
their digital content from unauthorized access or copying. Specifically, Article
11 of the WIPO Copyright Treaty prescribes that contracting states
shall provide adequate legal protection and effective legal
remedies against the circumvention of effective technological
measures that are used by authors in connection with the exercise
of their rights under this Treaty or the Berne Convention and
that restricts acts, in respect of their works, which are not
authorized by the authors concerned or permitted by law.
See WIPO Copyright Treaty, Apr. 12, 1997, S. Treaty Doc. No. 105-17, art. 11
(1997); WIPO Performances and Phonograms Treaty, Apr. 12, 1997, S. Treaty
Doc. No. 105-17, art. 18 (1997) (same with respect to performers or producers
of phonograms). The United States signed these treaties on April 12, 1997,
and ratified them on October 21, 1998. See 144 Cong. Rec. 27,708 (1998)
(Resolution of Ratification of Treaties).
To implement these treaties, Congress enacted Title I of the Digital
Millennium Copyright Act (DMCA) on October 28, 1998, with the twin
233

goals of protecting copyrighted works from piracy and promoting electronic
commerce. See H.R. Rep. No. 105-551 (II), at 23 (1998); S. Rep. No. 105190, at 8 (1998); see also Universal City Studios, Inc. v. Corley, 273 F.3d 429,
440 (2d Cir. 2001); United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1129-30
(N.D. Cal. 2002). Congress accomplished these goals by enacting prohibitions
relating to the circumvention of copyright protection systems as set forth in
17 U.S.C. § 1201, and the integrity of copyright management information
pursuant to 17 U.S.C. § 1202. Cf. Microsoft Corp. v. AT&T Corp., 550 U.S.
437, 440 (2007) (“Congress is doubtless aware of the ease with which electronic
media such as software can be copied, and has not left the matter untouched.”)
(citing enactment of DMCA).
Criminal enforcement has largely focused on violations of the anticircumvention and anti-trafficking prohibitions in 17 U.S.C. § 1201, and thus
these are the main focus of this chapter. For a more complete discussion of the
provisions that protect the integrity of copyright management information, as
set forth in 17 U.S.C. § 1202, see Section B.5. of this Chapter.
2. Key Concepts: Access Controls vs. Copy Controls,
Circumvention vs. Trafficking
Section 1201 contains three prohibitions. First, it prohibits “circumvent[ing]
a technological measure that effectively controls access to a work protected
under this [copyright] title.” 17 U.S.C. § 1201(a)(1)(A). Second, it prohibits
the manufacture of or trafficking in products or technology designed to
circumvent a technological measure that controls access to a copyrighted work.
17 U.S.C. § 1201(a)(2). Third, it prohibits the manufacture of or trafficking
in products or technology designed to circumvent measures that protect a
copyright owner’s rights under the Copyright Act. 17 U.S.C. § 1201(b). As
noted more fully in Section C. of this Chapter, the DMCA provides several
exceptions.
Title I of the DMCA creates a separate private right of action on behalf
of “[a]ny person injured by a violation of section 1201 or 1202” in federal
district court. 17 U.S.C. § 1203(a). These prohibitions are criminally
enforceable against any person who violates them “willfully and for purposes of
commercial advantage or private financial gain,” excluding nonprofit libraries,
archives, educational institutions, and public broadcasting entities as defined
by 17 U.S.C. § 118(f ). 17 U.S.C. § 1204(a), (b). Although civil actions do not
require the claimant to establish that a DMCA violation was “willful” or for
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“commercial advantage or private financial gain,” the substantive law defining
violations of §§ 1201 or 1202 is generally the same for both criminal and
civil actions. Thus, published decisions relating to whether a violation of these
DMCA sections has occurred in civil cases are instructive in criminal cases.
a. Access Controls vs. Copy/Use Controls
To understand the technical requirements of the DMCA’s criminal
prohibitions, it is first important to understand what technology the DMCA
generally applies to, and what the DMCA outlaws. Congress intended Title I
of the DMCA to apply to copyrighted works that are in digital format and thus
could easily and inexpensively be accessed, reproduced, and distributed over the
Internet without the copyright owner’s authorization. The DMCA therefore
applies to what one might call a “digital lock”—a technological measure that
copyright owners use to control who may see, hear, or use copyrighted works
stored in digital form. These digital locks are commonly called either “access
controls” or “copy controls,” depending on what function the digital lock is
designed to control.
The DMCA states that a digital lock, or “technological measure” (as the
DMCA refers to such locks), constitutes an access control “if the measure, in
the ordinary course of its operation, requires the application of information,
or a process or a treatment, with the authority of the copyright owner, to gain
access to the work.” 17 U.S.C. § 1201(a)(3)(B). Thus, as the name suggests,
an access control prevents users from accessing a copyrighted work without
the author’s permission. For example, a technology that permits access to a
newspaper article on an Internet website only by those who pay a fee or have a
password would be considered an access control. See S. Rep. No. 105-190, at
11-12 (1998); e.g., CoxCom, Inc. v. Chaffee, 536 F.3d 101, 110 (1st Cir. 2008)
(holding that cable company’s pay-per-view billing and delivery system that
scrambles pay-per-view programming unless subscribers choose to purchase
and view it constitutes an access control). In this example, the author (i.e.,
copyright owner) uses such fees or password requirements as access controls
that allow the author to distinguish between those who have the author’s
permission to read the online article from those who do not. If a user does not
pay the fee or enter the password, then the user cannot lawfully read the article
or otherwise access it.
The DMCA also prescribes that a digital lock constitutes a copy control
“if the measure, in the ordinary course of its operation, prevents, restricts, or
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otherwise limits the exercise of a right of a copyright owner under this title.”
17 U.S.C. § 1201(b)(2)(B). The rights of a copyright owner include the
exclusive rights to reproduce the copyrighted work, to prepare derivative works
based upon the copyrighted work, to distribute copies by sale or otherwise, to
perform the copyrighted work publicly, and to display the copyrighted work
publicly. 17 U.S.C. § 106. In other words, such a digital lock prevents someone
from making an infringing use of a copyrighted work after the user has already
accessed the work. See S. Rep. No. 105-190, at 11-12 (1998); Universal City
Studios, Inc. v. Corley, 273 F.3d 429, 441 (2d Cir. 2001). Although some
courts will refer to such digital locks as “usage controls” because such locks
conceivably seek to control all infringing uses, in practice, these digital locks
typically control unauthorized copying of the work—hence the name “copy
control.”
To illustrate an example of a copy control, consider again the online
newspaper article referenced above. A technological measure on an Internet
website that permits a user to read (i.e., access) the online article but prevents
the viewer from making a copy of the article once it is accessed would be a
copy control. See S. Rep. No. 105-190, at 11-12 (1998). Thus, access and copy
controls are different kinds of digital locks that are each designed to perform
different functions. Whereas an access control blocks access to the copyrighted
work—such as a device that permits access to an article on an Internet website
only by those who pay a fee or have a password—a copy control protects the
copyright itself—such as a device on the same website that prevents the viewer
from copying the article once it is accessed.
Although the DMCA’s distinction between an “access control” and a “copy
control” appears straightforward in principle, courts are not always consistent
in how they characterize a particular protection technology. For example, in the
1990s, the DVD industry developed the Content Scramble System (CSS)—
an encryption scheme incorporated into DVDs that employs an algorithm
configured by a set of “keys” to encrypt a DVD’s contents. For a DVD player
to display a movie on a DVD encoded with CSS, the DVD player must have
the “player keys” and the algorithm from the copyright owner. The Second
Circuit characterized this CSS technology as an “access control” because a
DVD player with the proper player keys and algorithm from the copyright
owner “can display the movie on a television or a computer screen, but does
not give a viewer the ability to use the copy function of the computer to copy
the movie or to manipulate the digital content.” Corley, 273 F.3d at 437. More
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than one decision out of the Northern District of California, however, viewed
the same technology as both an access control and a copy control. Apple, Inc. v.
Psystar Corp., 673 F. Supp. 2d 931, 941 (N.D. Cal. 2009), aff’d in relevant part,
658 F.3d 1150 (9th Cir. 2011) (“Although Apple’s technological measure may
have been primarily aimed at controlling access, it also effectively protected
its right to copy.”); 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F.
Supp. 2d 1085, 1095 (N.D. Cal. 2004). Accordingly, prosecutors should be
careful how they characterize technological controls as access or copy controls,
and in some instances it may even be advisable for prosecutors to characterize
a particular copyright protection system as both.
b. Circumvention vs. Trafficking in Circumvention Tools
Section 1201(a) of the DMCA proscribes two kinds of conduct regarding
access controls: 1) circumvention of access controls, 17 U.S.C. § 1201(a)(1),
and 2) trafficking in technology primarily designed to facilitate circumvention
of access controls, 17 U.S.C. § 1201(a)(2). Both of these prohibitions relating
to access controls are discussed more fully in Sections B.1. and B.2. of this
Chapter.
Unlike § 1201(a), however, Congress did not ban the act of circumventing
copy controls. Instead, § 1201(b) only prohibits trafficking in technology
primarily designed to facilitate the circumvention of copy controls. 17 U.S.C.
§ 1201(b)(1). Congress expressly chose not to prohibit the circumvention of
copy controls in the DMCA because circumventing a copy control is essentially
an act of copyright infringement that is already covered by copyright law. S.
Rep. No. 105-190, at 12 (1998).
Thus, § 1201(a)(1) (the “anti-circumvention provision”) prohibits the
actual use of circumvention technology to obtain access to a copyrighted
work without the copyright owner’s authority. “One of Congress’ purposes
behind enacting the DMCA was targeting the circumvention of technological
protections.” MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d
361, 365 (5th Cir. 2010). In contrast, § 1201(a)(2) and 1201(b)(1) (the “antitrafficking provisions”) focus on the trafficking in circumvention technology,
regardless of whether such technology ultimately leads a third party to
circumvent an access or copy control. See Davidson & Assocs. v. Jung, 422 F.3d
630, 640 (8th Cir. 2005); Corley, 273 F.3d at 440-41. And with respect to
the anti-trafficking provisions, “although both sections prohibit trafficking in
a circumvention technology, the focus of § 1201(a)(2) is circumvention of
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technologies designed to prevent access to a work, and the focus of § 1201(b)(1)
is circumvention of technologies designed to permit access to a work but prevent
copying of the work or some other act that infringes a copyright.” Davidson,
422 F.3d at 640 (emphasis in original); Ticketmaster L.L.C. v. RMG Techs., 507
F. Supp. 2d 1096, 1112 (C.D. Cal. 2007) (“Sections 1201(a)(2) and 1201(b)
(1) differ only in that 1201(a)(2), by its terms, makes it wrongful to traffic in
devices that circumvent technological measures that control access to protected
works, while 1201(b)(1) makes it wrongful to traffic in devices that circumvent
technological measures that protect rights of a copyright owner in a work.”)
(emphasis in original); Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d
1039, 1056 (N.D. Cal. 2010) (same).
The following chart illustrates the distinction:
Access

Copy

Circumventing

§ 1201(a)(1)

No DMCA violation, but potential
copyright violation: 17 U.S.C. § 506;
18 U.S.C. § 2319

Trafficking

§ 1201(a)(2)

§ 1201(b)(1)

3. Differences Between the DMCA and Traditional Copyright Law
Whereas copyright law focuses on “direct” infringement of a copyrighted
work, the DMCA focuses largely on the facilitation of infringement through
circumvention tools and services primarily designed or produced to circumvent
an access or copy control. In other words, the DMCA represents a shift in
focus from infringement to the tools of infringers.
Before the DMCA was enacted, copyright law had only a limited
application to the manufacture or trafficking of tools designed to facilitate
copyright infringement. In 1984, the Supreme Court held that “the sale
of copying equipment, like the sale of other articles of commerce, does
not constitute contributory infringement if the product is widely used for
legitimate, unobjectionable purposes. Indeed, it need merely be capable of
substantial noninfringing uses.” Sony v. Universal City Studios, 464 U.S. 417,
442 (1984). Under this standard, a copy control circumvention tool would not
violate copyright law if it were “widely used for legitimate ... purposes” or were
merely “capable of substantial noninfringing uses.” Id.
The DMCA shifts the focus from determining whether the downstream
use of equipment will be used for infringement, to determining whether it
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was primarily designed to circumvent an access or copy control—even if such
equipment were ultimately capable of substantial noninfringing uses. See 17
U.S.C. § 1201(a)(2)(A), (b)(1)(A). For example, with respect to software
primarily designed to circumvent copy controls on DVDs, courts have held
“that legal downstream use of the copyrighted material by customers is not a
defense to the software manufacturer’s violation of the provisions of § 1201(b)
(1).” 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085,
1097-98 (N.D. Cal. 2004); see also Realnetworks, Inc. v. DVD Copy Control
Ass’n, 641 F. Supp. 2d 913, 943-44 (N.D. Cal. 2009) (“[T]he fair use of the
copyrighted material by end users is not a defense to, and plays no role in
determining, liability under the DMCA.”). Thus, although trafficking in
circumvention technology that is capable of substantial noninfringing uses may
not constitute copyright infringement, it may still violate the DMCA if such
technology is primarily designed to circumvent access or copy controls. See
RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311,
at *7 (W.D. Wash. Jan. 18, 2000).
The DMCA also added a new prohibition against circumventing access
controls, even if such circumvention does not constitute copyright infringement.
17 U.S.C. § 1201(a)(1)(A). Prior to the DMCA, “the conduct of circumvention
[of access controls] was never before made unlawful.” S. Rep. No. 105-190, at
12 (1998); cf. Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178,
1195-96 (Fed. Cir. 2004). By the same token, the DMCA does not contain a
parallel prohibition against the use—infringing or otherwise—of copyrighted
works once a user has access to the work. United States v. Elcom Ltd., 203
F. Supp. 2d 1111, 1121 (N.D. Cal. 2002) (holding that “circumventing use
restrictions is not unlawful” under the DMCA); cf. S. Rep. No. 105-190, at 12
(1998) (“The copyright law has long forbidden copyright infringements, so no
new prohibition was necessary.”). The terms “bypass” or “avoid” in the statute
do not “encompass use of a copyrighted work subsequent to a circumvention
merely because that use would have been subject to a technological measure
that would have controlled access to the work, but for that circumvention.”
MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d 361, 366 (5th
Cir. 2010).
Although the DMCA “targets the circumvention of digital walls guarding
copyrighted material (and trafficking in circumvention tools), [it] does not
concern itself with the use of those materials after circumvention has occurred.”
Universal City Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001); MGE
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UPS Sys., 622 F.3d at 366 (same); cf. 321 Studios, 307 F. Supp. 2d at 1097
(holding that “the downstream uses of the [circumvention] software by the
customers of 321 [the manufacturer], whether legal or illegal, are not relevant
to determining whether 321 itself is violating [the DMCA]”). At the same
time, the DMCA also cautions that “[n]othing in this section shall affect rights,
remedies, limitations, or defenses to copyright infringement, including fair
use, under this title.” 17 U.S.C. § 1201(c)(1); Elcom, 203 F. Supp. 2d at 1120
(“Congress did not ban the act of circumventing the use restrictions ... because
it sought to preserve the fair use rights of persons who had lawfully acquired
a work”); MGE UPS Sys., 622 F.3d at 366 (applying the DMCA to the “use
of a copyrighted work subsequent to a circumvention ... would extend the
DMCA beyond its intended purposes to reach extensive conduct already wellregulated by existing copyright laws”); United States v. Crippen, No. 09-703,
2010 WL 7198205, at *2 (C.D. Cal. Nov. 23, 2010) (“The plain meaning of
§ 1201(c) is clear; the law of copyright infringement (and fair use) is not altered
by Congress’ decision to create liability for the separate act of circumvention
in violation of § 1201(a).”). Thus, a criminal defendant who has violated the
DMCA by circumventing an access control has not necessarily infringed a
copyrighted work under copyright law. Accordingly, prosecutors must apply
traditional copyright law instead of the DMCA to prosecute infringing uses
of copyrighted works, including the circumvention of copy controls. By the
same token, to demonstrate a violation of the DMCA, prosecutors need not
establish copyright infringement, nor even an intent to infringe copyrights.
In addition, unlike in a civil copyright claim, a victim’s failure to register
its copyrighted work is not a bar to a DMCA action. See Section B.1.c. of this
Chapter.
4. Other DMCA Sections That Do Not Concern Prosecutors
Of the DMCA’s five titles, the only one that need concern prosecutors
is Title I, which was codified at 17 U.S.C. §§ 1201-1205. The remaining
four titles concern neither criminal prosecutions nor those provisions of the
WIPO treaties that the DMCA was originally designed to implement. Title II
concerns the liability of Internet service providers for copyright infringement
over their networks. It amended the copyright code by enacting a new § 512,
which gives Internet service providers some immunity in return for certain
business practices, and requires them to obey certain civil subpoenas to identify
subscribers alleged to have committed infringement. Section 512 does not,
however, authorize criminal subpoenas for the same purpose.
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Title III of the DMCA clarifies that a lawful owner or lessee of a computer
may authorize an unaffiliated service provider to activate the computer to
service its hardware components. Title IV of the DMCA mandates a study of
distance learning; permits libraries and archives to use the latest technology to
preserve deteriorating manuscripts and other works; and permits transmitting
organizations to engage in ephemeral reproductions, even if they need to violate
the newly-added anti-circumvention features in the process. Finally, Title V of
the DMCA extends the scope of the Copyright Act’s protection to boat hulls.
For purposes of this Manual, all references to the DMCA concern Title I
unless the context demands otherwise.

B.

Elements of the Anti-Circumvention and AntiTrafficking Provisions
1. Circumventing Access Controls—17 U.S.C. §§ 1201(a)(1)
and 1204

The DMCA prohibits “circumvent[ing] a technological measure that
effectively controls access to a work protected under this [copyright] title.” 17
U.S.C. § 1201(a)(1)(A). To prove a violation of 17 U.S.C. §§ 1201(a)(1) and
1204, the government must establish that the defendant
1. willfully
2. circumvented
3. a technological measure that effectively controls access (i.e., an
access control)
4. to a copyrighted work
5. for commercial advantage or private financial gain.
For purposes of the DMCA, prosecutors may look to the law of copyright
infringement for guidance regarding the “willfully” element and the “commercial
advantage” element. See Chapter II of this Manual.
Two cases from the Federal Circuit have read an additional element
into § 1201(a) offenses, holding that the unauthorized access must also
infringe or facilitate infringing a right protected by the Copyright Act to
establish violations of 17 U.S.C. § 1201(a)(1) and (a)(2). Storage Tech. Corp. v.
Custom Hardware Eng’g & Consulting, Inc. (“StorageTek”), 421 F.3d 1307, 1318
(Fed. Cir. 2005) (quoting Chamberlain Group, Inc. v. Skylink Techs., Inc., 381
F.3d 1178, 1203 (Fed. Cir. 2004)). Although the results in Chamberlain and
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StorageTek are consistent with Congress’s intent that § 1201(a) apply to measures
controlling access to copyrighted works in digital form (see Section B.1.d. of
this Chapter), the courts reached those results using a flawed analysis. Neither
the DMCA’s plain language nor its legislative history permits circumvention of
access controls or trafficking in access or copy control circumvention devices to
enable a fair use, as opposed to an infringing use.
The Ninth Circuit recently declined to adopt the Federal Circuit’s
infringement nexus requirement, and explained that the Federal Circuit’s
approach “is contrary to the plain language of the statute.” MDY Indus., LLC v.
Blizzard Entm’t, Inc., 629 F.3d 928, 950 (9th Cir. 2010), as amended on denial
of reh’g, (Feb. 17, 2011). The Ninth Circuit further noted “that the legislative
history [of the DMCA] supports the conclusion that Congress intended to
prohibit even non-infringing circumvention and trafficking in circumventing
devices.” Id.
The government has consistently argued that the DMCA prohibits the
manufacture and trafficking in all circumvention tools, even those designed to
facilitate fair use. See Section C.10.d. of this Chapter. Additionally, unlike the
regional circuits, the Federal Circuit does not have the authority to develop a
body of case law on copyright law that is independent of the regional circuits.
StorageTek, 421 F.3d at 1311; Chamberlain, 381 F.3d at 1181. Accordingly,
until a regional circuit adopts the StorageTek-Chamberlain position regarding
the additional element to a § 1201(a) offense, prosecutors should oppose
any attempts to cite these decisions as meaningful precedent. If a defendant
does attempt to rely on these decisions, prosecutors are encouraged to contact
CCIPS at (202) 514-1026 for sample briefs and other guidance to oppose
them.
a. Circumventing
To “circumvent” an access control “means to descramble a scrambled
work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove,
deactivate, or impair a technological measure, without the authority of the
copyright owner.” 17 U.S.C. § 1201(a)(3)(A). Thus, to establish this element,
the government first must prove that the defendant 1) bypassed a technological
measure, and 2) did so without the authority of the copyright owner.
“Circumvention requires either descrambling, decrypting, avoiding,
bypassing, removing, deactivating or impairing a technological measure qua
technological measure.” I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys.,
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Inc., 307 F. Supp. 2d 521, 532 (S.D.N.Y. 2004); see also Egilman v. Keller &
Heckman, 401 F. Supp. 2d 105, 113 (D.D.C. 2005) (same); Universal City
Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001). In other words,
circumvention of an access control occurs when someone bypasses the
technological measure’s gatekeeping capacity, thereby precluding the copyright
owner from determining which users have permission to access the digital
copyrighted work and which do not. I.M.S., 307 F. Supp. 2d at 532. Arguably,
“a person circumvents a technological measure only when he affirmatively
performs an action that disables or voids the measure that was installed to
prevent them from accessing the copyrighted material.” Healthcare Advocates,
Inc. v. Harding, Earley, Follmer & Frailey, 497 F. Supp. 2d 627, 644 (E.D.
Pa. 2007) (emphasis added) (holding that law firm did not circumvent robot.
txt technological protection measure on Internet Archive website when such
measure malfunctioned and allowed access to archived images that otherwise
would have been blocked).
For example, in Corley, the Second Circuit characterized CSS, the scheme
for encrypting digital movies stored on DVDs, as an access control similar to
“a lock on a homeowner’s door, a combination of a safe, or a security device
attached to a store’s products.” Corley, 273 F.3d at 452-53. A licensed DVD
player would be, in this metaphor, the homeowner’s key to the door. Id. The
court held that defendant’s computer program, called “DeCSS,” circumvented
CSS because it decrypted the CSS algorithm to enable “anyone to gain access
to a DVD movie without using a [licensed] DVD player.” Id. at 453. DeCSS
functions “like a skeleton key that can open a locked door, a combination that
can open a safe, or a device that can neutralize a security device attached to
a store’s products.” Id. Thus, using DeCSS to play a DVD on an unlicensed
player circumvents an access control because it undermines the copyright
owner’s ability to control who can access the DVD movie. Id.
Circumvention does not occur, however, by properly using the technological
measure’s gatekeeping capacity without the copyright owner’s permission. R.C.
Olmstead, Inc. v. CU Interface LLC, 657 F. Supp. 2d 878, 889 (N.D. Ohio
2009) (“Simply put, CUI did not circumvent or bypass any technological
measures of the RCO software—it merely used a username and password-the
approved methodology—to access the software.”); Egilman, 401 F. Supp. 2d
at 113 (holding that the definition of circumvention is missing “any reference
to ‘use’ of a technological measure without the authority of the copyright
owner”); see also I.M.S., 307 F. Supp. 2d at 533 (“Whatever the impropriety of
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defendant’s conduct, the DMCA and the anti-circumvention provision at issue
do not target this sort of activity.”). Using CSS as an example, a defendant does
not circumvent a DVD’s access control, CSS, by merely borrowing another
person’s licensed DVD player to view the DVD, even if the defendant did not
receive permission from the owner of the licensed DVD player to “borrow”
the player. No circumvention has occurred because the defendant would not
have bypassed CSS. In fact, he would have viewed the DVD exactly as the
copyright owner had intended—by using a licensed DVD player. Courts
have similarly held that a defendant who without authorization uses a valid
password to access a password-protected website containing copyrighted works
does not engage in circumvention because the defendant used an authorized
password rather than disabled the access control (here, the password protection
mechanism). See Ground Zero Museum Workshop v. Wilson, 813 F. Supp. 2d
678, 692 (D.Md. 2011); R.C. Olmstead, 657 F. Supp. 2d at 889; Egilman,
401 F. Supp. 2d at 113-14; I.M.S., 307 F. Supp. 2d at 531-33. But see Actuate
Corp. v. Int’l Bus. Machines, No. C-09-05892, 2010 WL 1340519, at *9 (N.D.
Cal. Apr. 5, 2010) (“hold[ing] that unauthorized distribution of passwords
and usernames avoids and bypasses a technological measure in violation of
sections 1201(a)(2) and (b)(1)”); Microsoft Corp. v. EEE Bus. Inc., 555 F.
Supp. 2d 1051, 1059 (N.D. Cal. 2008) (“By distributing a [software license
key] without authorization, [defendant] effectively circumvented Microsoft’s
technological measure to control access to a copyrighted work in violation of
[17 U.S.C. § 1201(a)(2)].”). In this example, other charges might be available
if the defendant obtained information from a protected computer. I.M.S., 307
F. Supp. 2d at 524-26 (discussing possible violation of the Computer Fraud
and Abuse Act, 18 U.S.C. § 1030(a)).
In addition, for there to be a circumvention pursuant to § 1201(a)(3)(A),
the circumvention must occur “without the authority of the copyright owner.”
17 U.S.C. § 1201(a)(3)(A). A defendant who decrypts or avoids an access
control measure with the copyright owner’s authority has not committed a
“circumvention” within the meaning of the statute. See MDY Indus., LLC v.
Blizzard Entm’t, Inc., 629 F.3d 928, 954 n.16 (9th Cir. 2010), as amended on
denial of reh’g, (Feb. 17, 2011) (adopting the Second Circuit’s view in Corley
that § 1201(a)(3)(A) “plainly exempts from § 1201(a) liability those whom a
copyright owner authorizes to circumvent an access control measure”).
The fact that a purchaser has the right to use a purchased product does not
mean that the copyright owner has authorized the purchaser to circumvent the
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product’s access controls. For instance, a purchaser of a CSS-encrypted DVD
movie clearly has the “authority of the copyright owner” to view the DVD but
does not necessarily have the authority to view it on any platform capable of
decrypting the DVD, 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307
F. Supp. 2d 1085, 1096 (N.D. Cal. 2004) (holding “that the purchase of a
DVD does not give to the purchaser the authority of the copyright holder to
decrypt CSS”), nor “to perform non-licensed functions, such as copying DVD
content.” Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913,
934 (N.D. Cal. 2009); see also Davidson & Assocs. v. Jung, 422 F.3d 630, 641
(8th Cir. 2005) (holding that purchasers of interactive gaming software had
permission to use the game but lacked the copyright owner’s permission to
circumvent the encryption measure controlling access to the game’s interactive
mode). Thus, purchasers of products containing copyrighted works—by
virtue of that purchase alone—do not necessarily have the copyright owner’s
permission to circumvent a technological measure controlling access to the
copyrighted work.
b. Technological Measures That Effectively Control Access
(“Access Control”)
As already noted, 17 U.S.C. § 1201(a) concerns technological measures
designed to prevent access to a copyrighted work—technology typically referred
to as “access controls.” A technological measure does not constitute an access
control under the DMCA unless it “effectively controls access to a work.” 17
U.S.C. § 1201(a)(1)(A). “[A] technological measure ‘effectively controls access
to a [copyrighted] work’ if the measure, in the ordinary course of its operation,
requires the application of information, or a process or a treatment, with
the authority of the copyright owner, to gain access to the work.” 17 U.S.C.
§ 1201(a)(3)(B).
An access control “effectively controls access to a work” if its ordinary
function and operation is to control access to a copyrighted work’s expression,
regardless of whether or not the control is a strong means of protection. See,
e.g., 321 Studios, 307 F. Supp. 2d at 1095.
Significantly, courts have rejected the argument that the meaning of the
term “effectively” is based on how successful the technological measure is in
controlling access to a copyrighted work. See, e.g., id. (holding that the fact that
the CSS decryption keys permitting access to DVDs were “widely available
on the internet [sic]” did not affect whether CSS was “effective” under the
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DMCA); Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913,
932 (N.D. Cal. 2009) (holding that the “allegation that CSS is no longer an
effective technological measure because it has already been cracked or hacked,
is of no moment”); Apple, Inc. v. Psystar Corp., 673 F. Supp. 2d 931, 941
(N.D. Cal. 2009), aff’d in relevant part, 658 F.3d 1150 (9th Cir. 2011) (“’The
fact that circumvention devices may be widely available does not mean that a
technological measure is not, as the DMCA provides, effectively protecting the
rights of copyright owners in the ordinary course of its operation.’”) (quoting
Sony Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965
(N.D. Cal. 2006)). For example, protection “measures based on encryption or
scrambling ‘effectively control’ access to copyrighted works, although it is well
known that what may be encrypted or scrambled often may be decrypted or
unscrambled.” Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294,
318 (S.D.N.Y. 2000) (footnote omitted), aff’d sub nom. Universal City Studios,
Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).
Equating “effectively” with “successfully” “would limit the application of
the statute to access control measures that thwart circumvention, but withhold
protection for those measures that can be circumvented” and consequently “offer
protection where none is needed” while “withhold[ing] protection precisely
where protection is essential.” Id.; Divineo, 457 F. Supp. 2d at 965 (same); 321
Studios, 307 F. Supp. 2d at 1095 (comparing similar argument to the claim
that a deadbolt is ineffective because skeleton keys are readily available on the
black market); DVD Copy Control Ass’n, 641 F. Supp. 2d at 932 (same); see also
MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 954 n.17 (9th Cir.
2010), as amended on denial of reh’g, (Feb. 17, 2011) (“The statutory definition
of the phrase ‘effectively control access to a work’ does not require that an
access control measure be strong or circumvention-proof. Rather, it requires
an access control measure to provide some degree of control over access to a
copyrighted work.”); Lexmark Int’l, Inc. v. Static Control Components, Inc., 387
F.3d 522, 549 (6th Cir. 2004) (“[A] precondition for DMCA liability is not
the creation of an impervious shield to the copyrighted work .... Otherwise, the
DMCA would apply only when it is not needed.”) (internal citations omitted).
Although the DMCA does not define “access,” at least one court has
held that controlling access to a copyrighted work means controlling access
to the expression (e.g., controlling the ability to see or to read the actual
text of a copyrighted computer program, hear a copyrighted song, or watch
a copyrighted movie) contained in a copyrighted work. Lexmark, 387 F.3d
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at 547 (holding that an authentication sequence that prevented “access” to a
copyrighted computer program on a printer cartridge chip by preventing the
printer from functioning and the program from executing did not “control[]
access” under the DMCA because the copyrighted work’s expression (the
computer program) was nonetheless “freely readable”); Auto Inspection Services,
Inc. v. Flint Auto Auction, Inc., No. 06-15100, 2006 WL 3500868, at *8 (E.D.
Mich. Dec. 4, 2006) (holding that a “user detection feature” that “is a part
of the program itself and in no way controls access to the source code” does
not constitute an access control because “it merely alerts [plaintiff] as to who
[sic] is using the Program”). In the context of a computer program, the Sixth
Circuit held that an access control under the DMCA must control access to the
program’s copyrighted expression—i.e., control the ability to see or to read the
program’s code. Lexmark, 387 F.3d at 548.
On the other hand, a technological measure that controls only the function
of a copyrighted computer program but leaves the code freely readable is not
an access control under the DMCA. Compare id. at 547 (holding that there
is no precedent deeming a control measure as one that “effectively controls
access” under the DMCA “where the [purported] access-control measure
left the literal code or text of the computer program or data freely readable”)
and MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 952 (9th Cir.
2010), as amended on denial of reh’g, (Feb. 17, 2011) (same), with Agfa
Monotype Corp. v. Adobe Sys., Inc., 404 F. Supp. 2d 1030, 1036 (N.D. Ill.
2005) (holding that font embedding bits are not technological measures that
“effectively control access” because they “have been available for free download
from the Internet” and are “not secret or undisclosed. Embedding bits are not
encrypted, scrambled or authenticated, and software applications ... need not
enter a password or authorization sequence to obtain access to the embedding
bits or the specification for the” font) and Davidson, 422 F.3d at 641 (holding
that a technological measure that controlled access to a computer program’s
expression that otherwise “was not freely available” “without acts of reverse
engineering” constituted an “access control” under the DMCA).
c. To a Copyrighted Work
The access control also must have controlled access to a copyrighted work.
See 17 U.S.C. § 1201(a)(1)(A), (2)(A)-(C) (referring repeatedly to “a work
protected under this title [17]”). The protection of a copyrighted work is an
essential element. See S. Rep. No. 105-190, at 28-29 (1998). The DMCA’s anticircumvention prohibition does not apply to someone who circumvents access
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controls to a work in the public domain, like a book of Shakespeare, because
such a protection measure controls access to a work that is not copyrighted. Cf.
United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1131-32 (N.D. Cal. 2002).
A victim’s failure to register its copyrighted work is not a bar to a DMCA
action. See I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc., 307 F.
Supp. 2d 521, 531 n.9 (S.D.N.Y. 2004); Medical Broad. Co. v. Flaiz, No. Civ.A.
02-8554, 2003 WL 22838094, at *3 (E.D. Pa. Nov. 25, 2003) (finding that
“[w]hile a copyright registration is a prerequisite under 17 U.S.C. § 411(a) for
an action for [civil] copyright infringement, claims under the DMCA ... are
simply not copyright infringement claims and are separate and distinct from
the latter”) (citation omitted).
d. How Congress Intended the Anti-Circumvention Prohibition
to Apply
Courts have acknowledged that, on its face, § 1201(a)(1) prescribes that
one unlawfully circumvents an access control even where the ultimate goal of
such circumvention is fair use of a copyrighted work. See, e.g., Reimerdes, 111
F. Supp. 2d at 304 (holding that an unlawful circumvention of a technological
measure can occur even though “[t]echnological access control measures have
the capacity to prevent fair uses of copyrighted works as well as foul”). Although
Congress was concerned that the DMCA’s anti-circumvention prohibition
could be applied to prevent circumvention of access controls for legitimate fair
uses, Congress concluded that strong restrictions on circumvention of access
control measures were essential to encourage digital works because otherwise
such works could be pirated and distributed over the Internet too easily. See
Lexmark, 387 F.3d at 549.
For this reason, courts will strictly apply § 1201(a) to copyrighted expression
stored in a digital format whereby, for instance, executing encrypted computer
code containing the copyrighted expression actually generates the visual and
audio manifestation of protected expression. Lexmark, 387 F.3d at 548 (holding
that Congress intended § 1201(a) to apply where executing “encoded data on
CDs translates into music and on DVDs into motion pictures, while the program
commands in software for video games or computers translate into some other
visual and audio manifestation”); see also MDY Indus., LLC v. Blizzard Entm’t,
Inc., 629 F.3d 928, 954 (9th Cir. 2010), as amended on denial of reh’g, (Feb.
17, 2011) (dynamic non-literal elements of the “World of Warcraft” game
protected by the “Warden” program cannot be accessed without connecting to
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a “Blizzard” server’s log on program); Nintendo of Am. Inc. v. Chan, No. CV
09-4203, 2009 WL 2190186, at *3 (C.D. Cal. July 21, 2009) (Nintendo DS
security system controls access to Nintendo’s copyrighted DS video games by
repeatedly transferring information to gain access to the IPL and Boot Code
programs); 321 Studios, 307 F. Supp. 2d at 1095 (movies on DVDs protected
by an encryption algorithm (CSS) cannot be watched without a DVD player
that contains an access key decrypting CSS); Davidson, 422 F.3d at 641
(encrypted algorithm on computer game prevented unauthorized interactive
use of computer game online); Pearl Inv., LLC v. Standard I/O, Inc., 257 F.
Supp. 2d 326, 349 (D. Me. 2003) (“encrypted, password-protected virtual
private network” prevented unauthorized access to copyrighted computer
software); Sony Computer Entm’t Am., Inc. v. Gamemasters, 87 F. Supp. 2d 976,
981 (N.D. Cal. 1999) (game console prevented unauthorized operation of
video games); RealNetworks, Inc. v. Streambox, Inc., Civ. No. 2:99CV02070,
2000 WL 127311, at *3 (W.D. Wash. Jan. 18, 2000) (authentication sequence
prevented unauthorized access to streaming copyrighted “digital works” online).
On the other hand, Congress did not intend the DMCA to apply (and courts
are less likely to apply it) where executing a copyrighted computer program
creates no protectable expression (as it would for a work in digital form),
but instead results in an output that is purely functional. See, e.g., Lexmark,
387 F.3d at 548 (holding that a computer chip on a replacement printer
cartridge that emulates an authentication sequence executing a copyrighted
code on a manufacturer’s printer cartridge did not violate § 1201(a) because
executing the code merely controls printer functions such as “paper feeding,”
“paper movement,” and “motor control” and therefore “is not a conduit to
protectable expression”); Chamberlain Group, Inc. v. Skylink Techs., Inc., 381
F.3d 1178, 1204 (Fed. Cir. 2004) (holding that use of a transmitter to emulate
a copyrighted computer code in a garage door opener did not violate § 1201(a)
because executing the code merely performed the function of opening the
garage door).
Accordingly, prosecutors should bear in mind that courts are more inclined
to rule that a defendant violated § 1201(a) if his conduct occurred in a context
to which Congress intended the statute to apply—i.e., when it involves an
access control that protects access to copyrighted expression stored in digital
form. For questions on this often technical point, prosecutors may wish to
consult CCIPS at (202) 514-1026.

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e. Regulatory Exemptions to Liability Under § 1201(a)(1)
Before prosecuting a charge of unlawful access control circumvention,
§ 1201(a)(1)(A), prosecutors should confirm whether the defendant’s actions
fall within the Librarian of Congress’s latest regulatory exemptions.
Because Congress was concerned that the DMCA’s prohibitions against
circumventing access controls might affect citizens’ noninfringing uses of works
in unforeseeable and adverse ways, Congress created a recurring rulemaking
proceeding to begin two years after the DMCA’s enactment and every three
years thereafter. 17 U.S.C. § 1201(a)(1)(C), (D). Thus, the first rulemaking took
place in 2000, the second was in 2003, the third was in 2006, and the fourth
occurred as an interim rulemaking in 2009 and was promulgated in final form
in July of 2010. The fifth DMCA rulemaking proceeding took place in 2012,
and concluded in October of 2012. Specifically, the DMCA provides that its
prohibition on access circumvention itself, 17 U.S.C. § 1201(a)(1)(A), will not
apply to users’ control of certain types of works if, upon the recommendation of
the Register of Copyrights, the Librarian of Congress concludes that the ability
of those users “to make noninfringing uses of [a] particular class of work[]” is
“likely to be ... adversely affected” by the prohibition. 17 U.S.C. § 1201(a)(1)
(B). The statute makes clear, however, that any exceptions to § 1201(a)(1)(A)
adopted by the Librarian of Congress are not defenses to violations of the antitrafficking provisions contained in § 1201(a)(2) and 1201(b). See 17 U.S.C.
§ 1201(a)(1)(E).
The current exemptions are effective beginning on October 28, 2012, and
they are as follows:
• Literary works, distributed electronically, that are protected by
technological measures which either prevent the enabling of read-aloud
functionality or interfere with screen readers or other applications
or assistive technologies when: (i) a copy of such a work is lawfully
obtained by a blind or other person with a disability provided that
the rights owner is remunerated, as appropriate, for the price of the
mainstream copy of the work as made available to the general public
through customary channels; or (ii) such work is a nondramatic literary
work, lawfully obtained and used by an authorized entity pursuant to
17 U.S.C. 121.
• Computer programs that enable wireless telephone handsets to execute
lawfully obtained software applications, where circumvention is
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•

•

•

accomplished for the sole purpose of enabling interoperability of such
applications with computer programs on the telephone handset.
Computer programs, in the form of firmware or software, that enable
a wireless telephone handset originally acquired from the operator of
a wireless telecommunications network or retailer no later than ninety
days after the effective date of this exemption to connect to a different
wireless telecommunications network, if the operator of the wireless
communications network to which the handset is locked has failed to
unlock it within a reasonable period of time following a request by the
owner of the wireless telephone handset, and when circumvention is
initiated by the owner, an individual consumer, who is also the owner of
the copy of the computer program in such wireless telephone handset,
solely in order to connect to a different wireless telecommunications
network, and such access to the network is authorized by the operator
of the network.
Motion pictures on DVDs that are lawfully made and acquired and
that are protected by the Content Scrambling System where the
person engaging in circumvention believes and has reasonable grounds
for believing that circumvention is necessary because reasonably
available alternatives, such as noncircumventing methods or using
screen capture software as provided for in alternative exemptions,
are not able to produce the level of high-quality content required to
achieve the desired criticism or comment on such motion pictures,
and where circumvention is undertaken solely in order to make use
of short portions of the motion pictures for the purpose of criticism
or comment in the following instances: (i) noncommercial videos; (ii)
documentary films; (iii) nonfiction multimedia ebooks offering film
analysis; and (iv) education purposes in film studies or other courses
requiring close analysis of film and media excerpts.
Motion pictures that are lawfully made and acquired via online
distribution services and that are protected by various technological
protection measures, where the person engaging in circumvention
believes and has reasonable grounds for believing that circumvention
is necessary because reasonably available alternatives, such as
noncircumventing methods or using screen capture software as provided
for in alternative exemptions, are not able to produce the level of highquality content required to achieve the desired criticism or comment

V. Digital Milllenium Copyright Act

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•

•

252

on such motion pictures, and where circumvention is undertaken
solely in order to make use of short portions of the motion pictures
for the purpose of criticism or comment in the following instances:
(i) noncommercial videos; (ii) documentary films; (iii) nonfiction
multimedia ebooks offering film analysis; and (iv) educational purposes
in film studies or other courses requiring close analysis of film and
media excerpts.
Motion pictures on DVDs that are lawfully made and acquired and
that are protected by the Content Scrambling System, where the
circumvention, if any, is undertaken using screen capture technology
that is reasonably represented and offered to the public as enabling the
reproduction of motion picture content after such content has been
lawfully decrypted, when such representations have been reasonably
relied upon by the user of such technology, when the person engaging
in the circumvention believes and has reasonable grounds for believing
that the circumvention is necessary to achieve the desired criticism or
comment, and where the circumvention is undertaken solely in order
to make use of short portions of the motion pictures for the purpose
of criticism or comment in the following instances: (i) noncommercial
videos; (ii) documentary films; (iii) nonfiction multimedia ebooks
offering film analysis; and (iv) educational purposes.
Motion pictures that are lawfully made and acquired via online
distribution services and that are protected by various technological
protection measures, where the circumvention, if any, is undertaken
using screen capture technology that is reasonably represented and
offered to the public as enabling the reproduction of motion picture
content after such content has been lawfully decrypted, when such
representations have been reasonably relied upon by the user of such
technology, when the person engaging in the circumvention believes
and has reasonable grounds for believing that the circumvention is
necessary to achieve the desired criticism or comment, and where
the circumvention is undertaken solely in order to make use of short
portions of the motion pictures for the purpose of criticism or comment
in the following instances: (i) noncommercial videos; (ii) documentary
films; (iii) nonfiction multimedia ebooks offering film analysis; and
(iv) educational purposes.

Prosecuting Intellectual Property Crimes

•

Motion pictures and other audiovisual works on DVDs that are
protected by the Content Scrambling System, or that are distributed by
an online service and protected by technological measures that control
access to such works, when circumvention is accomplished solely to
access the playhead and/or related time code information embedded
in copies of such works and solely for the purpose of conducting
research and development for the purpose of creating players capable of
rendering visual representations of the audible portions of such works
and/or audible representations or descriptions of the visual portions
of such works to enable an individual who is blind, visually impaired,
deaf, or hard of hearing, and who has lawfully obtained a copy of such a
work, to perceive the work; provided however, that the resulting player
does not require circumvention of technological measures to operate.

See 37 C.F.R. § 201.40 (2012).
2. Trafficking in Access Control Circumvention Tools and
Services—17 U.S.C. §§ 1201(a)(2) and 1204
In addition to prohibiting the circumvention of access controls, the
DMCA also prohibits the manufacture of, or trafficking in, any technology
that circumvents access controls without the copyright owner’s permission.
17 U.S.C. § 1201(a)(2). To prove a violation of 17 U.S.C. .§§ 1201(a)(2) and
1204, the government must establish that the defendant
1. willfully
2. manufactured or trafficked in
3. a technology, product, service, or part thereof
4. that either:
a. is primarily designed or produced for the purpose of
b. “has only limited commercially significant purpose or use other
than” or
c. “is marketed by that person or another acting in concert with
that person with that person’s knowledge for use in”
5. circumventing an access control without authorization from the
copyright owner
6. for commercial advantage or private financial gain.
For purposes of the DMCA, prosecutors may look to the law of
copyright infringement for guidance regarding the “willfully” element and the
“commercial advantage” element, discussed in Chapter II of this Manual. For
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a complete discussion of establishing the element regarding circumventing
an access control, see Sections B.1.a.-e. of this Chapter. The Federal Circuit’s
additional element for establishing a violation of § 1201(a)(2)—that the
unauthorized access must also infringe or facilitate infringing a right protected
by the Copyright Act—is discussed in Section B.1.
a. Trafficking
Section 1201(a)(2) states that “[n]o person shall manufacture, import,
offer to the public, provide, or otherwise traffic in” a technology or service
that unlawfully circumvents an access control. To “traffic” in such technology
means to engage either in dealings in that technology or service or in conduct
that necessarily involves awareness of the nature of the subject of the trafficking.
Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 325 (S.D.N.Y.
2000), aff’d sub nom. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d
Cir. 2001). To “provide” technology means to make it available or to furnish it.
Id. The phrase “or otherwise traffic in” modifies and gives meaning to the words
“offer” and “provide.” Id. Thus, “the anti-trafficking provision of the DMCA is
implicated where one presents, holds out or makes a circumvention technology
or device available, knowing its nature, for the purpose of allowing others to
acquire it.” Id. This standard for “trafficking,” therefore, hinges on evaluating
the trafficker’s purpose for making the circumvention technology available.
See id. at 341 n.257 (“In evaluating purpose, courts will look at all relevant
circumstances.”). Significantly, however, the government need not prove “an
intent to cause harm” to establish the trafficking element. Cf. Universal City
Studios, Inc. v. Corley, 273 F.3d 429, 457 (2d Cir. 2001).
This standard is particularly helpful for determining whether a defendant
has trafficked online in unlawful circumvention technology. For example,
courts may view a defendant’s trafficking to include offering circumvention
technology for download over the Internet, or posting links to websites
that automatically download such technology when a user is transferred by
hyperlink, where the purpose of such linking is to allow others to acquire the
circumvention technology. See, e.g., Reimerdes, 111 F. Supp. 2d at 325, 341
n.257 (holding that offering and providing for download a computer program
to circumvent DVD access controls for the purpose of disseminating the
program satisfies trafficking element of § 1201(a)(2)). In addition, at least one
court has found that posting a hyperlink to web pages “that display nothing
more than the [circumventing] code or present the user only with the choice of
commencing a download of [the code] and no other content” also constitutes
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“trafficking” under the DMCA because the defendant’s express purpose in
linking to these web pages was to disseminate the circumventing technology.
Id. at 325.
In contrast, posting a link to a web page that happens to include, among
other content, a hyperlink for downloading (or transferring to a page for
downloading) a circumvention program would not, alone, constitute
“trafficking” in the program “regardless of purpose or the manner in which
the link was described.” Id.; see also id. at 341 n.257 (“A site that deep links
to a page containing only [the circumventing program] located on a site that
contains a broad range of other content, all other things being equal, would
more likely be found to have linked for the purpose of disseminating [the
program] than if it merely links to the home page of the linked-to site.”). This
result is consistent with the general principle that a website owner cannot be
held responsible for all the content of the sites to which it provides links. Id.
at 325 n.180 (quotation omitted). Thus, posting a link (or “linking”) to a
circumvention program could constitute “trafficking” if the person linking to
the program 1) knew that the program is on the linked-to site; 2) knew that
the program constituted unlawful circumvention technology; and 3) posted
the link for the purpose of disseminating that technology. See id. at 325, 341.
b. In a Technology, Product, Service, or Part Thereof
Section 1201(a)(2) prohibits trafficking “in any technology, product,
service, device, component, or part thereof ” that unlawfully circumvents access
controls. This language is “all-encompassing: it includes any tool, no matter
its form, that is primarily designed or produced to circumvent technological
protection.” United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1123 (N.D.
Cal. 2002). This element is not limited to conventional devices but instead
includes “any technology,” including computer code and other software,
capable of unlawful circumvention. Reimerdes, 111 F. Supp. 2d at 317 & n.135.
In addition, the government satisfies this element even if only one “part” or
feature of the defendant’s technology unlawfully circumvents access controls.
See 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085,
1098 (N.D. Cal. 2004).
c. Purpose or Marketing of Circumvention Technology
Section 1201(a)(2) prohibits trafficking in technology that unlawfully
circumvents access controls and either “is primarily designed or produced for
th[at] purpose,” “has only limited commercially significant purpose or use other
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than” such purpose; or is knowingly marketed for such purpose. 17 U.S.C.
§ 1201(a)(2)(A)-(C). Thus, “only one of the[se] three enumerated conditions
must be met” to satisfy this element. See 321 Studios, 307 F. Supp. 2d at 1094;
see also Dish Network L.L.C. v. Whitehead, No. 3:09-cv-532-J-32JRK, 2011
WL 6181732, at *5 (M.D. Fla. Dec. 13, 2011); EchoStar Satellite LLC v.
ViewTech, Inc., Case No. 07cv1273, 2011 WL 1522409, at *2 (S.D. Cal. April
20, 2011). And, as noted elsewhere, the fact that a particular circumvention
technology is capable of substantial noninfringing uses is not a defense to
trafficking in technology that circumvents access controls and violates one of
the three conditions enumerated in § 1201(a)(2)(A)-(C). See Realnetworks,
Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 941 (N.D. Cal. 2009)
(“no grounding in law ... to assert a ‘fair use’ defense based on [circumvention
technology] being capable of substantial noninfringing use”); Universal City
Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 323-24 (S.D.N.Y. 2000), aff’d
sub nom. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001);
RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, at
*8 (W.D. Wash. Jan. 18, 2000).
i. Primarily Designed or Produced
Trafficking in circumvention technology violates § 1201(a)(2)(A) where its
“primary purpose” is to circumvent technological measures controlling access
to, for example, copyrighted video games (Davidson & Assocs. v. Jung, 422 F.3d
630, 641 (8th Cir. 2005); Sony Computer Entm’t Am., Inc. v. Gamemasters,
87 F. Supp. 2d 976, 987 (N.D. Cal. 1999)); copyrighted streaming video or
music content (Streambox, No. 2:99CV02070, 2000 WL 127311, at *7-*8);
copyrighted satellite programming (Dish Network, L.L.C. v. SatFTA, No. 5:08cv-01561, 2011 WL 856268, at *3-*4 (N.D. Cal. 2011 March 9, 2011));
and copyrighted movies encrypted onto DVDs (Universal City Studios, Inc.
v. Reimerdes, 111 F. Supp. 2d 294, 318-19 (S.D.N.Y. 2000), aff’d sub nom.
Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001); 321 Studios
v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1098 (N.D. Cal.
2004); Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 933
(N.D. Cal. 2009)).
Whether a technology’s “primary purpose” is to circumvent an access
control is determined by the circumvention technology’s primary function,
not the trafficker’s subjective purpose. DVD Copy Control Ass’n, 641 F. Supp.
2d at 940 (“it is the product’s function and not the designer’s motivation that
determines liability”); see also Reimerdes, 111 F. Supp. 2d at 319 (motivation
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of developer “immaterial” to whether the defendants “violated the antitrafficking provision of the DMCA”). The defendant’s subjective motive may,
however, affect whether his conduct falls within one of the DMCA’s statutory
exceptions. Id. (Conduct at issue “prohibited [under DMCA] irrespective of
why the [circumvention technology] was written, except to whatever extent
motive may be germane to determining whether [defendants’] conduct falls
within one of the statutory exceptions.”). See Section C. of this Chapter for an
overview of these exceptions.
In Reimerdes, which concerned the CSS DVD-encryption scheme, the
court found that “(1) CSS is a technological means that effectively controls
access to plaintiffs’ copyrighted works, (2) the one and only function of [the
defendant’s program] is to circumvent CSS, and (3) defendants offered and
provided [the program] by posting it on their web site.” Reimerdes, 111 F. Supp.
2d at 319. The court held that it was “perfectly obvious” that the program
“was designed primarily to circumvent CSS.” Id. at 318. Defendants argued
that their program was not created for the “purpose” of pirating copyrighted
movies, but rather to allow purchasers of DVDs to play them on unlicensed
DVD players running the Linux operating system. Id. at 319. As the court
held, however, “whether the development of a Linux DVD player motivated
those who wrote [the program] is immaterial to the question” of whether the
defendants “violated the anti-trafficking provision[s] of the DMCA.” Id.; see
also DVD Copy Control Ass’n, 641 F. Supp. 2d at 940. The trafficking “of the
program is the prohibited conduct—and it is prohibited irrespective of why
the program was written.” Reimerdes, 111 F. Supp. 2d at 319. And it is equally
irrelevant for whom the program was written. See Sony Computer Entm’t Am.,
Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006) (“The fact that
users of mod chips must be technologically sophisticated is not evidence that
the purpose of the mod chips is not circumvention.”).
ii. Limited Commercially Significant Purpose Other Than
Circumvention
Whether a technology has only limited commercially significant purpose
other than circumvention is a separate inquiry from whether its primary purpose
was to circumvent, and it requires a fact-specific inquiry that often hinges on
whether the circumvention technology is “free and available.” Some courts,
however, have ruled that a particular technology “is primarily designed or
produced for the purpose of circumventing” access controls (§ 1201(a)(2)(A))
and also “has only limited commercially significant purpose” other than such
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circumvention (§ 1201(a)(2)(B)). See, e.g., Davidson, 422 F. 3d at 641 (holding
that defendant’s circumvention technology “had limited commercial purpose
because its sole purpose was ... circumventing [the] technological measures
controlling access to Battle.net and the [computer] games”); Streambox, No.
2:99CV02070, 2000 WL 127311, at *8 (holding that defendant violated
§ 1201(a)(2)(A) and (a)(2)(B) by trafficking in circumvention technology that
had “no significant commercial purpose other than to enable users to access
and record protected content”). However, at least one court suggested that
whether a defendant violates § 1201(a)(2)(B) “is a question of fact for a jury to
decide,” even where the court otherwise finds that the defendant has violated
§ 1201(a)(2)(A). 321 Studios, 307 F. Supp. 2d at 1098.
iii. Knowingly Marketed for Circumvention
When accused of having marketed technology for use in circumventing
access controls in violation of § 1201(a)(2)(C), defendants have raised First
Amendment defenses—particularly where only a part of a product circumvents
access controls—contending that marketing the product may include
dissemination of information about the product’s other, legal attributes.
Although a more complete discussion analyzing the DMCA’s validity under
the First Amendment is discussed in Section C.10.b. of this Chapter, it is
worth noting here that “the First Amendment does not protect commercial
speech that involves illegal activity,” even if that commercial speech is merely
instructions for violating the law. 321 Studios, 307 F. Supp. 2d at 1098-99
(citing Florida Bar v. Went For It, Inc., 515 U.S. 618, 623-24 (1995)); see also
Corley, 273 F.3d at 447 (citing United States v. Raymond, 228 F.3d 804, 815
(7th Cir. 2000) (holding that “First Amendment does not protect instructions
for violating the tax laws”)). Thus, knowingly marketing technology for use
in circumventing access controls in violation of § 1201(a)(2)(C) constitutes
illegal activity, and hence, unprotected speech. 321 Studios, 307 F. Supp. 2d
at 1099 (“[A]s 321 markets its software for use in circumventing CSS, this
Court finds that 321’s DVD copying software is in violation of the marketing
provisions of §§ 1201(a)(2) and (b)(1).”).
3. Trafficking in Tools, Devices, and Services to Circumvent Copy
Controls—17 U.S.C. §§ 1201(b)(1) and 1204
As noted above, the DMCA prohibits the manufacture or trafficking in
any technology that circumvents copy controls without the copyright owner’s

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permission. 17 U.S.C. § 1201(b)(1). To prove a violation of 17 U.S.C.
§§ 1201(b)(1) and 1204, the government must establish that the defendant
1.
2.
3.
4.

willfully
manufactured or trafficked in
a technology, product, service, or part thereof
that either:
a. “is primarily designed or produced for the purpose of ”
b. “has only limited commercially significant purpose or use other
than” or
c. “is marketed by that person or another acting in concert with
that person with that person’s knowledge for use in”
5. “circumventing”
6. “protection afforded by a technological measure that effectively
protects a right of a copyright owner under this title in a work or a
portion thereof ”
7. “for commercial advantage or private financial gain.”
See 17 U.S.C. §§ 1201(a)(2)(A)-(C), 1204. For purposes of the DMCA,
prosecutors may look to the law of copyright infringement for guidance
regarding the “willfully” element and the “commercial advantage” element. See
Chapter II of this Manual. In addition, because the second, third, and fourth
elements of a § 1201(b) violation operate in the same way as do the comparable
elements of a § 1201(a) violation, a complete discussion of those elements may
be found in Sections B.1. and B.2. of this Chapter.
a. Circumventing
To “circumvent protection afforded by a technological measure,” as set forth
in 17 U.S.C. § 1201(b), “means avoiding, bypassing, removing, deactivating,
or otherwise impairing a technological measure.” 17 U.S.C. § 1201(b)(2)
(A). To establish this element, the government must show that the defendant
trafficked in technology allowing the end user to bypass a copy or use control
that “effectively protects the right of a copyright owner.” 17 U.S.C. § 1201(b)
(1), (b)(2)(B). Courts have found that the following technologies circumvent
copy controls: (1) a computer program that removes user restrictions from
an “ebook” to make such files “readily copyable” and “easily distributed
electronically,” United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1118-19
(N.D. Cal. 2002); (2) technology that bypasses copy controls intended to
prevent the copying of streaming copyrighted content, RealNetworks, Inc. v.
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Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, at *6-*8 (W.D. Wash.
Jan. 18, 2000); (3) technology that bypasses copy controls intended to prevent
the copying of copyrighted Nintendo DS video games, Nintendo of Am. Inc. v.
Chan, No. CV 09-4203, 2009 WL 2190186, at *3 (C.D. Cal. July 21, 2009);
and (4) technology that bypasses a scheme intended to “control copying of
[encrypted] DVDs,” 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307
F. Supp. 2d 1085, 1097 (N.D. Cal. 2004). Further, at least two courts have
held that bypassing a DVD’s access and copy controls unlawfully “avoids and
bypasses” (i.e., circumvents) the DVD’s copy control pursuant to § 1201(b)(2)
(A). Id. at 1098; Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d
913, 935 (N.D. Cal. 2009).
b. Technological Measure That Effectively Protects a Right
of a Copyright Owner Under This Title (“Copy Control”)
“[A] technological measure ‘effectively protects a right of a copyright
owner under this title’ if the measure, in the ordinary course of its operation,
prevents, restricts, or otherwise limits the exercise of a right of a copyright
owner under this title.” 17 U.S.C. § 1201(b)(2)(B). The “rights of a copyright
owner” include all the exclusive rights set forth in 17 U.S.C. § 106: the rights
to reproduce the copyrighted work, to prepare derivative works based upon
the copyrighted work, to distribute copies by sale or otherwise, to perform the
copyrighted work publicly, and to display the copyrighted work publicly. Elcom,
203 F. Supp. 2d at 1124. Thus, a technological measure “‘effectively protects
the right of a copyright owner’ if, in the ordinary course of its operation, it
prevents, restricts or otherwise limits the exercise of any of the rights set forth
in Section 106.” See id. at 1124 (quoting 17 U.S.C. § 1201(b)(2)(B)); Agfa
Monotype Corp. v. Adobe Sys., Inc., 404 F. Supp. 2d 1030, 1039 (N.D. Ill.
2005) (holding that computer font embedding bits do not protect the rights of
a copyright owner where “[s]uch embedding bits do not prevent copying, and
a computer program can simply proceed to copy the ... [f ]ont data regardless
of the setting of the bit”).
Notably, the government has successfully taken the position that although
fair use normally limits a copyright owner’s right to claim infringement,
§ 1201(b)(1) nonetheless prohibits trafficking in all tools that circumvent copy
controls, even if such tools circumvent copy protections for the purpose of
facilitating fair uses of a copyrighted work. See, e.g., Elcom, 203 F. Supp. 2d at
1124 (“Nothing within the express language would permit trafficking in devices
designed to bypass use restrictions in order to enable a fair use, as opposed
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to an infringing use.”). Hence, § 1201(b)(1) bans trafficking in all tools that
are primarily designed or produced for the purpose of circumventing copy
controls, regardless of whether the downstream use of such tools is infringing
or not. See id. “It is the technology itself at issue, not the uses to which the
copyrighted material may be put.” 321 Studios, 307 F. Supp. 2d at 1097; accord
Dish Network, L.L.C. v. SatFTA, No. 5:08-cv-01561, 2011 WL 856268, at
*4 (N.D. Cal. March 9, 2011) (holding defendant liable for § 1201(b)(1)
violations and explaining that “[w]hile the DMCA provides for a limited ‘fair
use’ exception for certain end users of copyrighted works, the exception does
not apply to manufacturers or traffickers ….”) (quoting Realnetworks, Inc. v.
DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 942 (N.D. Cal. 2009); Sony
Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D.
Cal. 2006) (“downstream customers’ lawful or fair use of circumvention devices
does not relieve [defendant] from liability for trafficking in such devices under
the DMCA”). This is consistent with Congress’s intent in enacting the DMCA:
“Congress did not ban the act of circumventing the use restrictions. Instead,
Congress banned only the trafficking in and marketing of devices primarily
designed to circumvent the use restriction protective technologies. Congress
did not prohibit the act of circumvention because it sought to preserve the
fair use rights of persons who had lawfully acquired a work.” Elcom, 203 F.
Supp. 2d at 1120 (emphasis omitted); Realnetworks, Inc. v. DVD Copy Control
Ass’n, 641 F. Supp. 2d 913, 942 (N.D. Cal. 2009) (same); see also Universal
City Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001) (“[T]he DMCA
targets the circumvention of digital walls guarding copyrighted material (and
trafficking in circumvention tools), but does not concern itself with the use of
those materials after circumvention has occurred.”) (emphasis and citations
omitted).
Accordingly, while it is not unlawful to circumvent a copy or usage control
for the purpose of engaging in fair use, it is unlawful under § 1201(b)(1) to
traffic in tools that allow fair use circumvention. Elcom, 203 F. Supp. 2d at
1125; DVD Copy Control Ass’n, 641 F. Supp. 2d at 942 (same). Further, “legal
downstream use of the copyrighted material by customers is not a defense to
the software manufacturer’s violation of the provisions of § 1201(b)(1).” 321
Studios, 307 F. Supp. 2d at 1097-98.

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4. Alternate § 1201(b) Action—Trafficking in Certain Analog
Videocassette Recorders and Camcorders
Congress’s decision to include a prohibition regarding analog technology
may be a non sequitur in an act entitled the “Digital Millennium Copyright
Act.” Nonetheless, § 1201(k)(5) of the DMCA prescribes that any violation of
17 U.S.C. § 1201(k)(1) regarding copy controls on certain analog recording
devices “shall be treated as a violation of ” § 1201(b)(1). Section 1201(k)(1)(A)
proscribes trafficking in any VHS, Beta, or 8mm format analog video cassette
recorder or 8mm analog video cassette camcorder unless such recorder or
camcorder “conforms to the automatic gain control copy control technology.”
17 U.S.C. § 1201(k)(1)(A)(i)-(iv). The same prohibition applies to any “analog
video cassette recorder that records using an NTSC format video input.” 17
U.S.C. § 1201(k)(1)(A)(v). Section 1201(k)(1)(B) also prohibits trafficking in
any VHS or 8mm format analog video cassette recorder if the recorder’s design
(previously conforming with § 1201(k)(1)(A)) was modified to no longer
conform with automatic gain control copy technology. 17 U.S.C. § 1201(k)
(1)(B)(i). Similarly, the DMCA prohibits trafficking in such an analog video
cassette recorder if it “previously conformed to the four-line colorstripe copy
control technology” but was later modified so that it “no longer conforms to
such technology.” 17 U.S.C. § 1201(k)(1)(B)(ii). In addition, the DMCA
requires “manufacturers that have not previously manufactured or sold VHS
[or 8mm] format analog video cassette recorder[s] to conform to the four-line
colorstripe copy control technology.” Id.
Notably, § 1201(k) does not (1) require analog camcorders to conform
to the automatic gain control copy control technology for video signals
received through a camera lens; (2) apply to the manufacture or trafficking in
any “professional analog video cassette recorder;” or (3) apply to transactions
involving “any previously owned analog video cassette recorder” that had been
both legally manufactured and sold when new and also not later modified to
violate § 1201(k). 17 U.S.C. § 1201(k)(3)(A)-(C).
5. Falsifying, Altering, or Removing Copyright Management
Information—17 U.S.C. § 1202
Section 1202 prohibits anyone from knowingly falsifying, removing, or
altering “copyright management information”—such as a copyrighted work’s
title, copyright notice, or author—with the intent to induce, enable, facilitate,
or conceal infringement. 17 U.S.C. § 1202(a)(1), (b)(1), (c) (defining
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“copyright management information”). Section 1202 further prohibits
intentionally facilitating infringement by knowingly distributing or importing
for distribution (1) false copyright management information or (2) copyright
management information knowing that such information has been removed
or altered without authority. 17 U.S.C. § 1202(a)(2), (b)(2). Finally, § 1202
prohibits anyone from intentionally facilitating infringement by distributing,
importing for distribution, or publicly performing copyrighted works, copies of
works, or phonorecords knowing that their copyright management information
has been removed or altered without authority. 17 U.S.C. § 1202(b)(3).
Thus, while § 1201 primarily targets circumvention devices and technology,
“Section 1202 imposes liability for specified acts. It does not address the
question of liability for persons who manufacture devices or provide services.”
H.R. Rep. No. 105-551 (I), at 22 (1998). Like § 1201, however, to establish
a criminal violation of § 1202, the government must prove two elements in
addition to those in the statute itself—that the defendant violated § 1202 both
(1) willfully and (2) for purposes of commercial advantage or private gain. 17
U.S.C. § 1204(a). Criminal enforcement of § 1202 of the DMCA is rare, and
prosecutors are encouraged to contact CCIPS at (202) 514-1026 for guidance
when considering a charge under this provision.

C.

Defenses

The DMCA provides for several statutory defenses, exceptions, and even
“exemptions” to the anti-circumventing and anti-trafficking prohibitions set
forth in 17 U.S.C. § 1201. As the following discussion demonstrates, these
defenses do not apply uniformly to the anti-circumvention (§ 1201(a)(1)(A))
and anti-trafficking provisions (§ 1201(a)(2), (b)).
1. Statute of Limitations
Section 1204(c) of the DMCA states that “[n]o criminal proceeding shall
be brought under this section unless such proceeding is commenced within 5
years after the cause of action arose.” 17 U.S.C. § 1204(c).
2. Librarian of Congress Regulations
The Librarian of Congress promulgates regulatory exemptions every three
years that apply only to § 1201(a)(1)(A)’s prohibitions against circumventing
access controls. See Section B.1.e. of this Chapter.
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3. Certain Nonprofit Entities
Section 1204(b) exempts from criminal prosecution all nonprofit libraries,
archives, educational institutions, or public broadcasting entities as defined by
17 U.S.C. § 118(f ). See also 17 U.S.C. § 1201(d) (listing other entities). The
exception set forth in § 1201(d) for nonprofit libraries, archives, and educational
institutions is not as broad as the exemption from criminal prosecution for
the same group of entities set forth in § 1204(b), because the latter (1) also
includes “public broadcasting entities” and (2) precludes prosecution for the
anti-circumvention and the anti-trafficking violations of § 1201.
4. Information Security Exemption
“[A]ny lawfully authorized investigative, protective, information security,
or intelligence activity of an officer, agent, or employee” or contractor of the
federal government or a state government is exempt from all three of § 1201’s
prohibitions for information security work on “a government computer,
computer system, or computer network.” 17 U.S.C. § 1201(e). Congress
intended that the term “computer system” would have the same meaning in
§ 1201(e) as it does in the Computer Security Act. H.R. Conf. Rep. No. 105796, at 66 (1998), reprinted in 1998 U.S.C.C.A.N. 639, 643.
This exemption is narrower than it might first appear. Congress intended
this exemption to permit law enforcement to lawfully disable technological
protection measures protecting copyrighted works (e.g., measures protecting
access to copyrighted computer software) to probe internal government
computer systems to ensure that they are not vulnerable to hacking. Id. at 6566. Thus, “information security” consists of “activities carried out in order to
identify and address the vulnerabilities of a government computer, computer
system, or computer network.” 17 U.S.C. § 1201(e) (emphasis added); see also
H.R. Conf. Rep. No. 105-796, at 8.
5. Reverse Engineering and Interoperability of Computer Programs
Section 1201(f ) contains three reverse engineering or “interoperability”
defenses for individuals using circumvention technology “‘for the sole purpose’
of trying to achieve ‘interoperability’ of computer programs through reverse
engineering.” Davidson & Assocs. v. Jung, 422 F.3d 630, 641-42 (8th Cir.
2005) (quoting 17 U.S.C. §1201(f )). Note that at least one court has held
that reverse engineering can satisfy the statutory fair use exception. Bowers v.
Baystate Techs., Inc., 320 F.3d 1317, 1325 (Fed. Cir. 2003).
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The key term for these defenses, “interoperability,” “means the ability of
computer programs to exchange information, and of such programs mutually
to use the information which has been exchanged.” 17 U.S.C. § 1201(f )(4).
The scope of these exemptions is expressly limited to “computer programs” and
does not authorize circumvention of access controls that protect other classes
of copyrighted works, such as movies. Universal City Studios, Inc. v. Reimerdes,
82 F. Supp. 2d 211, 218 (S.D.N.Y. 2000).
The first interoperability defense allows a person “who has lawfully
obtained the right to use a copy of a computer program ... for the sole purpose
of identifying and analyzing those elements of the program that are necessary
to achieve interoperability of an independently created computer program with
other programs, and that have not previously been readily available to th[at]
person” to circumvent an access control without violating the DMCA’s anticircumvention prohibition set forth in § 1201(a)(1)(A). 17 U.S.C. § 1201(f )
(1). By definition, this exemption does not apply to one who obtains a copy of
the computer program illegally.
Second, § 1201(f )(2) exempts violations of the DMCA’s anti-trafficking
provisions (§ 1201(a)(2), (b)) for those who “develop and employ technological
means” that are “necessary” to enable interoperability. Despite the statute’s
express requirement that this defense only applies “if such means are necessary
to achieve such interoperability,” 17 U.S.C. § 1201(f )(2), at least one court has
held that “the statute is silent about the degree to which the ‘technological means’
must be necessary, if indeed they must be necessary at all, for interoperability.”
Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522, 551 (6th
Cir. 2004).
Third, § 1201(f )(3) authorizes one who acquires information through
§ 1201(f )(1) to make this information and the technical means permitted
under § 1201(f )(2) available to others “solely for the purpose of enabling
interoperability of an independently created computer program with other
programs.” 17 U.S.C. § 1201(f )(3). Significantly, § 1201(f )(3) “permits
information acquired through reverse engineering to be made available to
others only by the person who acquired the information.” Universal City Studios,
Inc. v. Reimerdes, 111 F. Supp. 2d 294, 320 (S.D.N.Y. 2000), aff’d sub nom.,
Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001) (emphasis
added). Consequently, one court disallowed this defense because, inter alia,
the defendants “did not do any reverse engineering [themselves]. They simply
took [the program] off someone else’s web site and posted it on their own.” Id.
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None of these defenses apply if the defendant’s conduct also constituted
copyright infringement or, in the case of the third defense, otherwise “violate[d]
applicable law.” See 17 U.S.C. § 1201(f )(1)-(3); see also Lexmark, 387 F.3d at
551 (holding that defendant, which produced a computer chip that allowed
a remanufactured printer cartridge to interoperate with another’s originally
manufactured printer, did not commit infringement because the computer
program that defendant had copied from plaintiff was not copyrighted).
To establish a violation of the anti-trafficking provisions, prosecutors need
not establish that the defendant’s motive for manufacturing or trafficking in a
circumvention tool was to infringe or to permit or encourage others to infringe.
See Reimerdes, 111 F. Supp. 2d at 319. In contrast, to determine whether
defendants meet the interoperability exemption, prosecutors must determine
whether the defendant’s motive for developing or trafficking the technological
means for circumventing an access or copy control was “solely for the purpose”
of achieving or enabling interoperability. Id. at 320.
Courts strictly apply the requirement that circumvention and dissemination
occur “solely for the purpose” of achieving interoperability and not to facilitate
copyright infringement. For example, one court has held that circumventing
a copyrighted computer game’s access controls for the purpose of developing
and disseminating a copy or “emulator” that was essentially identical to
the original but lacked the original’s access control, “constituted more than
enabling interoperability” under § 1201(f )(1) and “extended into the realm
of copyright infringement.” Davidson & Assocs., Inc. v. Internet Gateway, Inc.,
334 F. Supp. 2d 1164, 1185-87 (E.D. Mo. 2004) (“The defendants’ purpose
in developing the bnetd server was to avoid the anti-circumvention restrictions
of the game and to avoid the restricted access to Battle.net. Thus, the sole
purpose of the [] emulator was not to enable interoperability.”), aff’d, 422 F.3d
at 642 (“Appellant’s circumvention in this case constitutes infringement.”); cf.
Reimerdes, 111 F. Supp. 2d at 320 (holding that the purpose of [the defendant’s
program] was simply to decrypt DVD access controls and not, as defendants
claimed, to achieve interoperability between computers running Linux operating
system because [the program] also could be used to decrypt and play DVDs on
unlicensed players running the Windows operating system). In addition, where
the development (or distribution to the public) of circumvention technology
itself constitutes copyright infringement, the DMCA expressly precludes
reliance on § 1201(f )(2) and (3). See id. (holding that “[t]he right to make the
information available extends only to dissemination ‘solely for the purpose’ of
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achieving interoperability as defined in the statute. It does not apply to public
dissemination of means of circumvention”) (footnote omitted).
Moreover, legislative history suggests that the “independently created
[computer] program” referenced in this exemption must not infringe the original
computer program and instead must be “a new and original work.” H.R. Rep.
No. 105-551 (II), at 42 (1998). Thus, if the defendant’s functionally equivalent
computer program is “new and original” only insofar as it lacks the original’s
access controls, then the defendant has not created an “independently created
computer program.” Davidson, 334 F. Supp. 2d at 1185, aff’d, 422 F.3d at 642.
If, on the other hand, the defendant’s program actually performs functions that
the original program did not, courts are more inclined to find that defendants
have satisfied the “independently created computer program” requirement.
Lexmark, 387 F.3d at 550 (holding that even though remanufacturer’s toner
cartridge chip contained “exact copies” of original manufacturer’s computer
program, it was nonetheless an “independently created computer program”
because it “contain[s] other functional computer programs beyond the copied”
original program). The independent program need not have already existed
before the defendant reverse-engineered the original program. Id. at 55051 (holding that “nothing in the statute precludes simultaneous creation of
an interoperability device and another computer program” so long as it is
“‘independently’ created”).
6. Encryption Research
Certain encryption research is exempted from liability under § 1201(a) (but
not from § 1201(b)). Reimerdes, 111 F. Supp. 2d at 321 n.154. For purposes of
this exemption, “encryption research” consists of “activities necessary to identify
and analyze flaws and vulnerabilities of encryption technologies applied to
copyrighted works, if these activities are conducted to advance the state of
knowledge in the field of encryption technology or to assist in the development
of encryption products.” 17 U.S.C. § 1201(g)(1)(A). The phrase, “encryption
technologies,” “means the scrambling and descrambling of information using
mathematical formulas or algorithms.” 17 U.S.C. § 1201(g)(1)(B).
The first encryption research exemption is that it is not a violation of
the anti-circumvention provision (§ 1201(a)(1)(A)) where a defendant
“circumvent[s] a technological measure as applied to a copy, phonorecord,
performance, or display of a published work in the course of an act of good
faith encryption research if ” four conditions are satisfied: (1) he “lawfully
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obtained” the applicable encrypted published work; (2) the circumvention “is
necessary to conduct such encryption research;” (3) he “made a good faith effort
to obtain authorization before the circumvention;” and (4) the circumvention
does not constitute copyright infringement “or a violation of applicable law,”
including the Computer Fraud Abuse Act of 1986, 18 U.S.C. § 1030. 17
U.S.C. § 1201(g)(2).
To determine whether a defendant qualifies for this exemption, courts
consider the following non-exclusive factors: (1) whether the results of the
putative encryption research are disseminated in a manner designed to advance
the state of knowledge of encryption technology versus facilitation of copyright
infringement; (2) whether the person in question is engaged in legitimate
study of or work in encryption; and (3) whether the results of the research are
communicated in a timely fashion to the copyright owner. 17 U.S.C. § 1201(g)
(3); see also Reimerdes, 111 F. Supp. 2d at 321.
The second encryption research exemption is that a defendant does
not violate the access control anti-trafficking provision (§ 1201(a)(2)) for
developing and distributing tools, such as software, that are needed to conduct
permissible encryption research as described in the first encryption research
exemption in § 1201(g)(2). 17 U.S.C. § 1201(g)(4); H.R. Rep. No. 105-551
(II), at 44 (1998). This exemption essentially frees an encryption researcher to
cooperate with other researchers, and it also allows one researcher to provide
the technological means for such research to another to verify the research
results. Id.
It is not a violation of § 1201(a)(2) for a person to (1) “develop and employ
technological means to circumvent a technological measure for the sole purpose
of that person performing the acts of good faith encryption research described
in” § 1201(g)(2) and (2) “provide the technological means to another person
with whom he or she is working collaboratively” for the purpose of either
conducting good faith encryption research or having another person verify
such research as described in § 1201(g)(2). 17 U.S.C. § 1201(g)(4).
This exemption is quite complex and has been relied upon infrequently in
reported decisions. For a report on the early effects of this exemption (or lack
thereof ) on encryption research and on protection of content owners against
unauthorized access of their encrypted copyrighted works, see the “Report to
Congress: Joint Study of Section 1201(g) of The Digital Millennium Copyright Act”
prepared by the U.S. Copyright Office and the National Telecommunications
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and Information Administration of the Department of Commerce pursuant
to § 1201(g)(5), available at http://www.copyright.gov/reports/studies/dmca_
report.html.
7. Restricting Minors’ Access to the Internet
Section 1201(h) creates a discretionary exception, giving the court
discretion to waive violations of § 1201(a)(1)(A) and 1201(a)(2) so that those
prohibitions are not applied in a way that “inadvertently make[s] it unlawful
for parents to protect their children from pornography and other inappropriate
material available on the Internet, or have unintended legal consequences for
manufacturers of products designed solely to enable parents to protect their
children.” H.R. Rep. No. 105-551 (II), at 45 (1998). Specifically, § 1201(h)
authorizes the court to “consider the necessity for its intended and actual
incorporation in a technology, product, service, or device, which (1) does
not itself violate the provisions of this title; and (2) has the sole purpose to
prevent the access of minors to material on the Internet.” 17 U.S.C. § 1201(h).
Congress was concerned that if Internet filtering tools are developed in the
future that incorporate a part or component that circumvent access controls to
a copyrighted work “solely in order to provide a parent with the information
necessary to ascertain whether that material is appropriate for his or her child,
this provision authorizes a court to take into consideration the necessity for
incorporating such part or component in a suit alleging a violation of section
1201(a).” S. Rep. No. 105-190, at 14 (1998).
To date, no reported case has applied this discretionary exception.
8. Protection of Personally Identifying Information
Section 1201(i)(1) states that it is not a violation of § 1201(a)(1)(A) to
circumvent an access control for the purpose of disabling files that collect
personally identifiable information like “‘cookie files’—which are automatically
deposited on hard drives of computers of users who visit World Wide Web
sites.” Id. at 18. However, if a copyright owner conspicuously discloses
that its access control also contains personal data gathering capability, and
if the consumer is given the ability to effectively prohibit that gathering or
dissemination of personal information, then this exception does not apply and
no circumvention is permitted. H.R. Rep. No. 105-551 (II), at 45 (1998).
Further, if the copyright owner conspicuously discloses that neither the access
control nor the work it protects collect personally identifying information,
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then no circumvention is permitted. 17 U.S.C. § 1201(i)(2). Note that this
exception does not apply to the anti-trafficking prohibitions.
9. Security Testing
A person who engages in good faith “security testing” does not violate
§ 1201(a). 17 U.S.C. § 1201(j). “Security testing” consists of “accessing a
computer, computer system, or computer network, solely for the purpose of good
faith testing, investigating, or correcting, a security flaw or vulnerability, with
the authorization of the owner or operator of such computer, computer system,
or computer network.” 17 U.S.C. § 1201(j)(1). Without such authorization,
a defendant cannot qualify for this exemption. Reimerdes, 111 F. Supp. 2d at
321. A defendant engaging in security testing does not violate § 1201(a)(1)
(A) so long as such testing does not constitute copyright infringement nor a
violation of other applicable law such as the Computer Fraud and Abuse Act
of 1986. 17 U.S.C. § 1201(j)(2). In evaluating this exemption, the DMCA
requires a court to consider whether the information derived from the security
testing (1) “was used solely to promote the security of the owner or operator
of [or shared directly with the developer of ] such computer, computer system
or computer network, or” (2) “was used or maintained in a manner that does
not facilitate [copyright] infringement” or a violation of other applicable law.
17 U.S.C. § 1201(j)(3).
Likewise, a defendant does not violate § 1201(a)(2) for trafficking in a
“technological means for the sole purpose of performing the acts of security
testing” if the testing does not “otherwise violate section (a)(2).” 17 U.S.C.
§ 1201(j)(4).
10. Constitutionality of the DMCA
Civil and criminal defendants have repeatedly challenged the
constitutionality of Title I of the DMCA, particularly 17 U.S.C. § 1201(a)
(2) and 1201(b). Defendants have repeatedly challenged Congress’s authority,
for example, to enact the DMCA pursuant to the Commerce Clause and
Intellectual Property Clause. None of these challenges has yet prevailed.
a. Congress’s Constitutional Authority to Enact § 1201 of the DMCA
Congress enacted § 1201 pursuant to its authority under the Commerce
Clause. See U.S. Const., art. I, § 8, cl. 3; H.R. Rep. No. 105-551 (II), at 22, 35
(1998). Federal courts have uniformly upheld this authority. See, e.g., United
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States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1138 (N.D. Cal. 2002) (“Congress
plainly has the power to enact the DMCA under the Commerce Clause.”); 321
Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1103 (N.D.
Cal. 2004) (same). Article I, Section 8, Clause 3 of the Constitution delegates
to Congress the power “[t]o regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes.” Congress does not exceed
its Commerce Clause authority where a rational basis exists “for concluding
that a regulated activity sufficiently affected interstate commerce.” United
States v. Lopez, 514 U.S. 549, 558 (1995) (citations omitted). The DMCA
prohibits circumventing access controls and the trafficking in technology that
facilitates circumvention of access or copy controls—the type of conduct that
has a substantial effect on commerce between the states and commerce with
foreign nations. See 321 Studios, 307 F. Supp. 2d at 1103. Congress created the
DMCA’s anti-trafficking prohibitions to directly regulate specific items moving
in commerce (circumvention technology) and to protect channels of interstate
commerce, including electronic commerce. H.R. Rep. No. 105-551(II),
at 22 (1998). Most significantly, to the extent that circumvention devices
enable criminals to engage in piracy by unlawfully copying and distributing
copyrighted works, the sale of such devices has a direct effect on suppressing
the market for legitimate copies of the works. See 321 Studios, 307 F. Supp.
2d at 1103; Elcom, 203 F. Supp. 2d at 1138. Accordingly, Congress had a
rational basis for concluding that § 1201 regulates activity that substantially
affects interstate commerce and therefore acted within its authority under the
Commerce Clause. See Elcom, 203 F. Supp. 2d at 1138.
Courts have similarly rejected the argument that the DMCA violates the
Intellectual Property Clause. The Commerce Clause authorizes Congress to
enact legislation that protects intellectual property rights, even where the
Intellectual Property Clause alone does not provide sufficient authority for such
legislation. Federal courts have long recognized that while each of the powers
of Congress is alternative to all of the others, “what cannot be done under one
of them may very well be doable under another.” United States v. Moghadam,
175 F.3d 1269, 1277 (11th Cir. 1999). Congress may thus use the Commerce
Clause as a basis for legislating within a context contemplated by another
section of the Constitution (like the Intellectual Property Clause) so long as
Congress does not override an otherwise existing Constitutional limitation.
Id. (holding the criminal anti-bootlegging statute, 18 U.S.C. § 2319A, valid
under the Commerce Clause even if it is beyond Congress’s authority under
the Intellectual Property Clause); compare Heart of Atlanta Motel v. United
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States, 379 U.S. 241 (1964) (upholding public accommodation provisions of
the Civil Rights Act of 1964 as valid under the Commerce Clause despite the
fact that the Act may have reached beyond Congress’s authority under the
Fourteenth Amendment), and South Dakota v. Dole, 483 U.S. 203, 207 (1987)
(holding that Congress could rely on the Spending Clause to impose restrictions
that would otherwise exceed Congress’s power), with Railway Labor Executives’
Ass’n v. Gibbons, 455 U.S. 457 (1982) (striking down act by Congress under
Commerce Clause that violated Bankruptcy Clause’s uniformity requirement).
Further, the Intellectual Property Clause “itself is stated in positive terms,
and does not imply any negative pregnant” that would suggest “a ceiling on
Congress’ ability to legislate pursuant to other grants.” Moghadam, 175 F.3d
at 1280 (discussing constitutionality of the criminal anti-bootlegging statute,
18 U.S.C. § 2319A). Moreover, “[e]xtending quasi-copyright protection also
furthers the purpose of the Copyright Clause to promote the progress of the
useful arts.” Id.
The DMCA’s enactment pursuant to the Commerce Clause was valid
because it “is not fundamentally inconsistent with” the purpose of the Intellectual
Property Clause. Elcom, 203 F. Supp. 2d at 1139-41. Indeed, Congress “viewed
the [DMCA] legislation as ‘paracopyright’ legislation that could be enacted
under the Commerce Clause.” Id. at 1140. Moreover, protecting copyright
owners’ rights against unlawful piracy by preventing trafficking in tools that
would enable widespread piracy and unlawful infringement (i.e., circumvention
tools) is consistent with the Intellectual Property Clause’s grant to Congress of
the power to “‘promote the useful arts and sciences’ by granting exclusive rights
to authors in their writings.” Id.
Specifically, courts have rejected the common argument that the DMCA’s
ban on the sale of circumvention tools violates the Intellectual Property Clause’s
“limited Times” prohibition. That argument is based on the false premise
that the DMCA has the effect of allowing publishers to claim copyright-like
protection in copyrighted works, even after they pass into the public domain.
Prosecutors should vigorously oppose this flawed argument. Nothing in the
DMCA permits a copyright owner to prevent his work from entering the public
domain, despite the expiration of the copyright. Id. at 1141. As discussed in the
copyright chapter, the essence of copyright is the legally enforceable exclusive
right to reproduce and distribute copies of an original work of authorship, to
make derivative works, and to perform the work publicly for a limited time. See
supra Chapter II; see also Elcom, 203 F. Supp. 2d at 1141; 17 U.S.C. §§ 106,
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302, 303. When a copyright expires, so does any protectable intellectual
property right in a work’s expression. Elcom, 203 F. Supp. 2d at 1141. Upon
expiration, the user may copy, quote, or republish the expression without any
legally enforceable restriction on the use of the expression. Id. “Nothing within
the DMCA grants any rights to anyone in any public domain work. A public
domain work remains in the public domain[,] and any person may make use of
the public domain work for any purpose.” 321 Studios, 307 F. Supp. 2d at 1104
(internal quotation marks and citation omitted). Accordingly, the DMCA
does not extend any copyright protections beyond the statutory copyright
term merely by prohibiting the trafficking in or marketing of circumvention
technology. Id.
b. The First Amendment
Criminal and civil DMCA defendants have raised both facial and “as
applied” First Amendment challenges. Although federal courts have uniformly
rejected such challenges, defendants continue to raise them in part because the
overbreadth and “as applied” First Amendment tests each can include a factdependent component.
i. Facial Challenges
Facial First Amendment challenges to § 1201—typically alleging that the
statute is unconstitutionally overbroad—fail for at least two reasons. First, the
DMCA does not expressly proscribe spoken words or patently expressive or
communicative conduct. See Roulette v. City of Seattle, 97 F.3d 300, 303 (9th
Cir. 1996). “[A] facial freedom of speech attack must fail unless, at a minimum,
the challenged statute is directed narrowly and specifically at expression or
conduct commonly associated with expression.” Id. at 305 (citations and
internal quotation marks omitted); see also Virginia v. Hicks, 539 U.S. 113,
123 (2003).
Section 1201 of the DMCA, “[b]y its terms,” is not directed at expression
or conduct associated with expression. Elcom, 203 F. Supp. 2d at 1133. Instead,
§ 1201 is a law of general application focused on the circumvention of access
controls and the trafficking in circumvention tools; § 1201’s prohibitions are
not focused on speech. Id.; see also Anderson v. Nidorf, 26 F.3d 100, 103-04
(9th Cir. 1994) (holding that California’s anti-piracy statute is not subject to
facial challenge because, inter alia, the statute focused upon infringement for
commercial advantage or private financial gain). Accordingly, on this basis
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alone, “an overbreadth facial challenge [to § 1201] is not available.” Elcom,
203 F. Supp. 2d at 1133.
Second, even were the DMCA directed at spoken words or expressive
conduct—which no court has yet held—such a finding would be insufficient
to establish overbreadth as a matter of law. The defendant would still have to
independently establish that the DMCA is written so broadly that it infringes
unacceptably on the First Amendment rights of third parties. City Council v.
Taxpayers for Vincent, 466 U.S. 789, 798-99 (1984). The overbreadth doctrine
“is, manifestly, strong medicine,” to be employed “sparingly and only as a last
resort.” Broadrick v. Oklahoma, 413 U.S. 601, 613 (1973). For this reason, a
statute will be declared facially unconstitutional for overbreadth only if the
court finds a realistic danger that the statute itself will significantly compromise
recognized First Amendment protections of parties not before the court. See
New York State Club Ass’n, Inc. v. City of New York, 487 U.S. 1, 11 (1988).
The DMCA neither compromises a recognized First Amendment protection
of third parties, nor is there a realistic danger that such a compromise would
occur. Moreover, § 1201’s “plainly legitimate sweep” targets circumvention of
access controls and the manufacture or trafficking in circumvention technology,
not speech. Thus, it is highly unlikely that defendants could establish the facts
necessary to claim that § 1201 is overbroad. See Elcom, 203 F. Supp. 2d at
1133.
ii. “As Applied” Challenges
First Amendment “as applied” challenges to § 1201 necessarily vary
according to the technology at issue in each defendant’s particular case. DMCA
defendants have often alleged that the DMCA violates the First Amendment
when applied to circumvention technology in the form of computer code.
Although it is arguable whether computer object code constitutes speech,
every federal court that has held that computer code is speech has nonetheless
ruled that the anti-trafficking provisions do not violate the First Amendment
under an intermediate scrutiny standard because the DMCA (1) is contentneutral; (2) furthers important governmental interests in promoting electronic
commerce and protecting the rights of copyright owners; and (3) is sufficiently
tailored to achieve these objectives without unduly burdening free speech. See,
e.g., Elcom, 203 F. Supp. 2d at 1126-28 (applying United States v. O’Brien, 391
U.S. 367, 376 (1968) (“When ‘speech’ and ‘nonspeech’ elements are combined
in the same course of conduct, a sufficiently important governmental interest
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in regulating the nonspeech element can justify incidental limitations on First
Amendment freedoms.”)).
The DMCA’s anti-trafficking provisions are content neutral. See Universal
City Studios, Inc. v. Corley, 273 F.3d 429, 454 (2d Cir. 2001) (§ 1201(a)(2));
321 Studios, 307 F. Supp. 2d at 1100 (§ 1201(a)(2) and 1201(b)); Elcom, 203
F. Supp. 2d at 1128-29 (§ 1201(b)). The principal inquiry in determining
whether a statute is content neutral is “‘whether the government has adopted a
regulation of speech because of [agreement or] disagreement with the message
it conveys.’” Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 642 (1994) (quoting
Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989)). The government’s
purpose is the controlling measure. Id.
By this measure, the DMCA’s anti-trafficking provisions are clearly
content-neutral. Congress intended the DMCA to target the non-speech,
functional components of circumvention technology, Corley, 273 F.3d at 454,
not to “stifle[] speech on account of its message.” Turner, 512 U.S. at 641. The
DMCA is not a content-based statute that would require strict scrutiny under
the First Amendment. See 321 Studios, 307 F. Supp. 2d at 1100. In fact, “[t]he
reason that Congress enacted the anti-trafficking provision of the DMCA had
nothing to do with suppressing particular ideas of computer programmers and
everything to do with functionality.” Universal City Studios, Inc. v. Reimerdes,
111 F. Supp. 2d 294, 329 (S.D.N.Y. 2000), aff’d sub nom. Universal City
Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).
Ultimately, the DMCA is not concerned with whatever capacity
circumvention technology might have for conveying information to a person,
and that capacity is what arguably creates the speech component of, for example,
decrypting computer code. See Corley, 273 F.3d at 454. The DMCA would
apply to such code solely because of its capacity to decrypt, for instance, an
access control. Id. “That functional capability is not speech within the meaning
of the First Amendment.” Id.
A statute that is content neutral is subject to intermediate scrutiny and
hence satisfies the First Amendment “if it furthers an important or substantial
government interest; if the government interest is unrelated to the suppression
of free expression; and if the incidental restriction on alleged First Amendment
freedoms is no greater than is essential to the furtherance of that interest.”
Turner, 512 U.S. at 662 (quotation and citation omitted). The government’s
interest in preventing unauthorized copying of copyrighted works and
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promoting electronic commerce are unquestionably substantial. See H.R.
Rep. No. 105-551 (II), at 23 (1998); Elcom, 203 F. Supp. 2d at 1129-30;
Corley, 273 F.3d at 454. Congress enacted the DMCA after evaluating a great
deal of evidence establishing that copyright and intellectual property piracy
are endemic, especially digital piracy. See S. Rep. No. 105-190, at 8 (1998).
Thus, by prohibiting circumvention of access controls and the trafficking in
circumvention technology, “the DMCA does not burden substantially more
speech than is necessary to achieve the government’s asserted goals of promoting
electronic commerce, protecting copyrights, and preventing electronic piracy.”
See 321 Studios, 307 F. Supp. 2d at 1103 (internal quotation marks and citation
omitted).
Finally, courts have uniformly found that the DMCA’s anti-trafficking
provisions meet the Supreme Court’s narrow tailoring requirement that
a content-neutral regulation of speech promote a substantial government
interest that would be achieved less effectively absent the regulation. See id.
at 1101. The DMCA’s numerous exceptions (see Section C. of this Chapter)
further demonstrate that Congress narrowly tailored the statute to balance, for
instance, the needs of law enforcement, computer programmers, encryption
researchers, and computer security specialists against the problems created
by circumvention technology. See 17 U.S.C. § 1201(e)-(g), (j); Elcom, 203 F.
Supp. 2d at 1130-31.
c. Vagueness
Courts have also rejected challenges to the DMCA under the Fifth
Amendment on vagueness grounds. Vagueness may invalidate a statute if the
statute either (1) fails to provide the kind of notice that will enable ordinary
people to understand what conduct it prohibits, or (2) authorizes or encourages
arbitrary and discriminatory enforcement. City of Chicago v. Morales, 527
U.S. 41, 56 (1999). Defendants typically argue that the DMCA is vague
or otherwise infirm because it bans only those circumvention tools that are
primarily designed to circumvent access or copy controls to enable copyright
infringement, not those enabling fair uses. See, e.g., Elcom, 203 F. Supp. 2d
at 1122. This issue has arisen with respect to § 1201(b), which prohibits
trafficking in any copy control circumvention technology. Id. at 1124.
Courts have held, however, that the DMCA is not unconstitutionally
vague, because it imposes a blanket ban on all circumvention tools regardless
of whether the ultimate purpose for their use is fair or infringing. Id. “Congress
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thus recognized that most uses of tools to circumvent copy restrictions would
be for unlawful infringement purposes rather than for fair use purposes and
sought to ban all circumvention tools that ‘can be used’ to bypass or avoid copy
restrictions.” Id. at 1125 (quoting S. Rep. No. 105-190, at 29-30). Moreover,
Congress’s intent to preserve fair use, see § 1201(c), is not inconsistent with
a ban on trafficking in circumvention technologies, even those that could be
used for fair use purposes rather than infringement. Elcom, 203 F. Supp. 2d at
1125. Although the DMCA may make certain fair uses in digital works more
difficult, the DMCA does not eliminate fair use and in fact expressly permits
it. See Elcom, 203 F. Supp. 2d at 1125; 17 U.S.C. § 1201(c)(1). “Thus, while
it is not unlawful to circumvent for the purpose of engaging in fair use, it
is unlawful to traffic in tools that allow fair use circumvention.” Elcom, 203
F. Supp. 2d at 1125. Further, because the DMCA prohibits the trafficking
of all circumvention tools, Congress need not expressly tie the use of the
tool to an unlawful purpose (as may be required, for instance, in a multiuse device context). Id. Accordingly, the DMCA, “as written, allows a person
to conform his or her conduct to a comprehensible standard and is thus not
unconstitutionally vague.” Id. (citation omitted).
d. Fair Use
For a more detailed explanation of the fair use doctrine, see Section C.5. of
Chapter II of this Manual.
Defendants typically style their fair use defense to a DMCA violation as an
“as applied” First Amendment challenge. For example, traffickers have raised
fair use challenges “as applied” to the First Amendment rights of third-party
purchasers of the trafficker’s circumvention tools. This type of fair use defense
fails for at least three reasons. First, the challengers usually lack standing. “[A]
person to whom a statute may constitutionally be applied will not be heard
to challenge that statute on the ground that it may conceivably be applied
unconstitutionally to others, in other situations not before the Court.” Broadrick
v. Oklahoma, 413 U.S. 601, 610 (1973). Those who traffic in circumvention
tools that they do not use cannot assert a fair use defense because they are not
engaging in any use—fair or infringing—of a copyrighted work. Simply put,
traffickers lack standing to challenge the DMCA’s constitutionality based on its
application to the traffickers’ customers.
Second, even a purchaser who could have standing because he did use a
copyrighted work cannot rely on the fair use defense, because the DMCA does
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not present an issue of infringement. Fair use is an affirmative defense to copyright
infringement, something that the user can accomplish only after he has first
circumvented a work’s copy controls. See, e.g., Elcom, 203 F. Supp. 2d at 1121.
The DMCA “targets the circumvention of digital walls guarding copyrighted
material (and trafficking in circumvention tools), [it] does not concern itself
with the use of those materials after circumvention has occurred.” Corley, 273
F.3d at 443; United States v. Crippen, No. CR09-703PSG, 2010 WL 7198205,
at *2 (C.D. Cal. Nov. 23, 2010) (same) (granting the government’s motion
in limine to exclude evidence of fair use at trial where defendant was charged
with DMCA violations for modifying Microsoft Xbox gaming systems); see
also MGE UPS Sys., Inc. v. GE Consumer and Ind., Inc., 622 F.3d 361, 366
(5th Cir. 2010) (“Because § 1201(a)(1) is targeted at circumvention, it does
not apply to the use of copyrighted works after the technological measure has
been circumvented.”). Thus, the DMCA’s anti-trafficking provisions are not
concerned with purchasers’ downstream use of circumvention tools. See Corley,
273 F.3d at 442; Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp.
2d 913, 943-44 (N.D. Cal. 2009); 321 Studios, 307 F. Supp. 2d at 1097-98.
Third, no court has held that the fair use doctrine is a categorical
constitutional requirement. Corley, 273 F.3d at 458 (“[T]he Supreme Court
has never held that fair use is constitutionally required.”). Fair use is a judiciallycreated doctrine. Reimerdes, 111 F. Supp. 2d at 321. Fair use existed only at
common law until Congress codified it in the 1976 Copyright Act at 17 U.S.C.
§ 107, in order to maintain the common-law status quo. See H.R. Rep. No.
94-1476, at 66 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5680.
The fact that the fair use doctrine accommodates First Amendment
protections—i.e., that certain fair uses may also be protected under the First
Amendment, cf. Eldred v. Ashcroft, 537 U.S. 186, 218-20 (2003); Harper &
Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560 (1985)—does not
make the fair use doctrine and the First Amendment categorically coextensive.
See Elcom, 203 F. Supp. 2d at 1134 n.4 (“[There] is no direct authority for
the proposition that the doctrine of fair use is coextensive with the First
Amendment, such that ‘fair use’ is a First Amendment right”).
Most significantly, courts have rejected “the proposition that fair use, as
protected by the Copyright Act, much less the Constitution, guarantees copying
by the optimum method or in the identical format of the original.” Corley, 273
F.3d at 459. Fair use of copyrighted digital works is still possible under the
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DMCA, even though copying of such works may prove more difficult. 321
Studios, 307 F. Supp. 2d at 1102.
In addition, the DMCA does not place an impermissible financial burden
on fair users’ First Amendment rights. Courts have found that this “financial
burden” argument “is both an overstatement of the extent of the fair use
doctrine and a misstatement of First Amendment law.” Id. A statute’s financial
burden on a speaker renders the statute unconstitutional only if such burden
was placed on the speaker because of the speech’s content, not because of the
speaker’s desire to make the speech. Id. (citations omitted). Section 1201 of
the DMCA does not eliminate fair use nor prevent anyone from engaging in
traditional methods of fair use such as “quoting from a work or comparing
texts for the purpose of study or criticism.” Elcom, 203 F. Supp. 2d at 1134.
Finally, courts have rejected the argument that the DMCA impairs an
alleged First Amendment fair use right to access non-copyrighted works in the
public domain, because the DMCA permits authors to use access and copy
controls to protect non-copyrighted works and copyrighted works alike. See,
e.g., 321 Studios, 307 F. Supp. 2d at 1102; Elcom, 203 F. Supp. 2d at 1134.
Neither the DMCA nor the presence of access or copy controls affect whether
or not a work is in the public domain. 321 Studios, 307 F. Supp. 2d at 1102.

D.

Penalties

For the first criminal violation of Title I of the DMCA (§§ 1201, 1202),
the maximum penalty is five years’ imprisonment, a $500,000 fine or twice
the monetary gain or loss, or both imprisonment and a fine. 17 U.S.C. §§
1204, 3571(d). For subsequent offenses, the maximum penalty is ten years’
imprisonment, a $1 million fine or twice the monetary gain or loss, or both
imprisonment and a fine. Id. For a more complete discussion of sentencing
issues, see Chapter VIII of this Manual.

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VI.
Counterfeit and Illicit Labels,
Counterfeit Documentation and
Packaging—18 U.S.C. § 2318
A.

Distinguished from Trademark
and Copyright Statutes

Creative works can be protected by criminal laws other than the
Copyright Act. The most important of these is 18 U.S.C. § 2318, which
criminalizes knowingly trafficking in counterfeit or illicit labels and counterfeit
documentation and packaging for certain types of copyrighted works. Although
§ 2318 regulates items that accompany copyrighted works, it is not a pure
copyright statute, and its protections differ in scope from those afforded by the
Copyright Act.
Section 2318 also differs from civil and criminal trademark law. Although
counterfeit and illicit labels, documentation, and packaging often bear
counterfeit trademarks (trafficking in which is prohibited by the criminal
trademark statute, 18 U.S.C. § 2320), the use of a counterfeit mark is not an
element of a § 2318 offense. Section 2318 also differs from § 2320 in the types
of labels and packaging covered by each statute. Section 2320 criminalizes
trafficking of labels and related labeling components bearing counterfeit
trademarks, where such labels are used, designed, or intended to be used with
any types of good or service, whereas § 2318 covers only counterfeit labels (as
well as documentation and packaging) in connection with certain classes of
copyrighted works.
Section 2318 originally addressed counterfeit labels for sound recordings,
but has evolved over time to address counterfeit labels, documentation, and
packaging for a broader class of copyrighted works. See Sections B.3., B.4., and
E.5. of this Chapter. As a result of 2004 amendments, § 2318 now prohibits
trafficking in counterfeit labels for movies, music, software, copies of literary,
pictorial, graphic, or sculptural works, or works of visual art, or labels designed
281

to be used with documentation and packaging for any of the enumerated classes
of copyrighted works. 18 U.S.C. § 2318(a)(1)(A). Section 2318 also prohibits
trafficking in counterfeit documentation and packaging for the classes of works
listed above. 18 U.S.C. § 2318(a)(1)(B). In 2006, Congress further expanded
§ 2318 to address trafficking in what are known as “illicit” labels, which are
“genuine certificate[s], licensing document[s], registration card[s], or similar
labeling component[s]” that the copyright owner would normally use to verify
that a work is noninfringing (i.e., legitimate), but which are distributed or
intended for distribution without the owner’s permission, presumably to
facilitate infringement. 18 U.S.C. § 2318(b)(4). In 2008, the PRO-IP Act
revised § 2318’s restitution provision to refer to 18 U.S.C. § 2323, the general
forfeiture and restitution provision for IP offenses also created by the PRO-IP
Act. 18 U.S.C. § 2318(d). The PRO-IP Act also renumbered the subsections
within § 2318(a).
Sample indictments and jury instructions are provided in Appendix F of
this Manual.

B.

Elements

To obtain a conviction under 18 U.S.C. § 2318, the government must
prove five elements:
1. The defendant acted knowingly
2. The defendant trafficked
3. In labels affixed to, enclosing, or accompanying (or designed to
be affixed to, enclose, or accompany) a phonorecord, computer
program, motion picture or other audiovisual work, literary,
pictorial, graphic, or sculptural work, or work of visual art, or
documentation or packaging for such works (i.e., trafficked either
in documentation or packaging for such works itself, or in labels
for such documentation or packaging)
4. The documentation or packaging were counterfeit, or the labels
were counterfeit or illicit
5. Federal jurisdiction is satisfied because:
a. the offense occurred in special maritime territories or other
areas of special jurisdiction of the United States;
b. the offense used or intended to use the mail or a facility of
interstate or foreign commerce;
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c. the counterfeit or illicit labels were affixed to, enclosed, or
accompanied copyrighted materials (or were designed to); or
d. the documentation or packaging is copyrighted.
These elements are reviewed in detail in the following sections.
1. The Defendant Acted “Knowingly”
Section 2318 is a general intent crime. The government must prove first
that the defendant acted “knowingly.” This is less difficult than proving that
the defendant acted willfully, as with criminal copyright cases. See Chapter II,
Section B.2. of this Manual for a discussion of the “willful” standard in criminal
copyright infringement cases. Proving knowledge under § 2318 requires the
government to show only that the defendant knew that he was taking the
actions described in the statute. The government does not have to show that
the defendant knew his conduct was illegal. See Bryan v. United States, 524
U.S. 184, 193 (1998) (firearms offense) (“‘[K]nowingly’ merely requires proof
of knowledge of the facts that constitute the offense.”).
To establish knowledge in § 2318 cases involving counterfeit labels, the
government does not have to prove that the defendant acted with fraudulent
intent. Congress eliminated that element in 1982, believing that such proof was
“superfluous” because the government must already prove that the defendant
knew his labels were counterfeit. S. Rep. No. 97-274, at 9 (1981), reprinted
in 1982 U.S.C.C.A.N. 127, 135 (“In other words, it would be difficult to
conceive of a situation in which one could traffic in articles knowing that they
are counterfeit without intending to defraud the purchaser.”). It is less clear
whether, and to what extent, a requirement of fraudulent intent may be assumed
in cases involving illicit labels, but the statute does not expressly require such
proof. Nonetheless, the government must prove that the defendant knew that
the labels, documentation, or packaging in which he trafficked were counterfeit
or illicit. See, e.g., United States v. Teh, 535 F.3d 511, 519-20 (6th Cir. 2008);
United States v. Dixon, No. 84-5287, 1985 U.S. App. LEXIS 27076, at *911 (4th Cir. Aug. 12, 1985); see also Microsoft Corp. v. Pronet Cyber Techs.,
Inc., 593 F.Supp.2d 876, 884 (E.D. Va. 2009) (“[Section] 2318’s legislative
history suggests that Congress was well aware that the amended statute only
required proof of knowledge that labels were counterfeit—namely, that the
labels appeared to be genuine, but were not.”).
It may also suffice to prove that the defendant was willfully blind to the
fact that the items trafficked were counterfeit or illicit. Although no published
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cases specify that the government may satisfy § 2318 through proof of willful
blindness (also known as “conscious avoidance” or deliberate ignorance), courts
have held that proving willful blindness generally suffices to prove knowledge
in criminal cases. See United States v. Jewell, 532 F.2d 697, 699-704 (9th Cir.
1976) (discussing the history and use of “deliberate ignorance” instructions);
Microsoft Corp. v. Compusource Distribs., Inc., 115 F. Supp. 2d 800, 808-09 (E.D.
Mich. 2000) (citing evidence of defendant’s willful blindness as to authenticity
of software as supporting finding that he knew software was counterfeit); see
also Deborah Sprenger, Propriety of Instruction of Jury on “Conscious Avoidance”
of Knowledge of Nature of Substance or Transaction in Prosecution for Possession
or Distribution of Drugs, 109 A.L.R. Fed. 710 § 2[a] (2005). “The knowledge
element of a crime such as the one charged here may be satisfied upon a
showing beyond a reasonable doubt that a defendant had actual knowledge or
deliberately closed his eyes to what otherwise would have been obvious to him
concerning the fact in question.” United States v. Brodie, 403 F.3d 123, 148
(3d Cir. 2005) (internal quotation marks and citation omitted) (Trading with
the Enemy Act of 1917 and Cuban Assets Control Regulations violations).
Willful blindness goes beyond negligence: the defendant himself must have
been “objectively aware of the high probability of the fact in question, and not
merely that a reasonable man would have been aware of the probability.” Id.
(internal quotation marks and citation omitted).
The government need not prove that the defendant knew that his conduct
met the jurisdictional elements listed in § 2318(c), such as that the computer
program to which he had affixed his counterfeit labels was copyrighted. See
Section B.5. of this Chapter.
2. The Defendant Trafficked
In the second element of a § 2318 offense, the government must prove
that the defendant trafficked in labels, documentation, or packaging. The term
“traffic” in § 2318 is defined by reference to the definition of “traffic” used
in § 2320. See 18 U.S.C § 2320(f )(5) (“the term ‘traffic’ means to transport,
transfer, or otherwise dispose of, to another, for purposes of commercial
advantage or private financial gain, or to make, import, export, obtain control
of, or possess, with intent to so transport, transfer, or otherwise dispose of.”).
See also Chapter III, Section B.3. of this Manual for a discussion of the term
“traffic” as an element of a § 2320 offense. The only difference to note between
the application of the term traffic in § 2318 and § 2320 is that § 2320 punishes
attempts whereas § 2318 does not, and therefore any discussion of attempted
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trafficking with regard to § 2320 may not apply to § 2318. On the other hand,
because the definition of “traffic” in both statutes includes many acts that are
preparatory to distributing contraband—such as making it, obtaining it, and
possessing it with intent to traffic—the omission of an attempt provision in
§ 2318 should not prevent the government from pursuing otherwise deserving
cases. Thus, labels seized during the search of a counterfeiting operation may
constitute part of the indicted conduct, whether or not the labels had yet been
affixed to the works or transferred to distributors or customers.
3. Trafficking in Labels Affixed to, Enclosing, or Accompanying (or
Designed to be Affixed to, Enclose, or Accompany) a Phonorecord,
Computer Program, Motion Picture or Other Audiovisual Work,
Literary, Pictorial, Graphic, or Sculptural Work, or Work of Visual
Art, or Trafficking in Documentation or Packaging for Such Works
In the third element of a § 2318 offense, the government must prove
that the labels in which the defendant trafficked were affixed to, enclosing,
or accompanying—or designed to be affixed to, enclose, or accompany—
phonorecords, motion pictures or other audiovisual works, computer software,
literary, pictorial, graphic, or sculptural works, or works of visual art. See 18
U.S.C. § 2318(a)(1)(A), (b)(3) (defining the classes of copyrighted works); 17
U.S.C. §§ 101, 102 (same). Alternatively, the government may show that the
defendant trafficked in documentation or packaging for one of the enumerated
class of works, or labels affixed or designed to be affixed to copyrighted
documentation and packaging. See 18 U.S.C. § 2318(a)(1)(B), (b)(5).
The types of copyrighted works covered by the statute has expanded
significantly over the past two decades. Before 2004, 18 U.S.C. § 2318 applied
only to labels for movies, music, and software, and to documentation and
packaging only for computer software. The provisions relating to computer
software were added in 1996. As of 2004, however, § 2318 applies to labels,
documentation, and packaging for most types of copyrighted works that are
capable of being labeled or packaged. See 18 U.S.C. § 2318(a)(1), (b)(5).
Counterfeit labels (or documentation or packaging) need not actually be
affixed or attached to a copyrighted work to support a § 2318 charge, but
rather, need only be “affixed to, enclosing, or accompanying, or designed to be
affixed to, enclose, or accompany.” 18 U.S.C. § 2318(a)(1) (emphasis added).
Nevertheless, some nexus between the labels (or documentation or packaging)
and copyrighted works—whether actual or intended—is still required.
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Documentation and packaging still need only be “for” the enumerated
classes of copyrighted works. 18 U.S.C. § 2318(b)(5). Given the context,
the word “for” appears to have roughly the same meaning for documentation
and packaging that “affixed to, enclosing, or accompanying, or designed to
be affixed to, enclose, or accompany” has for labels. Thus, some physical
nexus with copyrighted works—whether actual or intended—is required for
documentation and packaging as well.
For a discussion of whether § 2318 applies to labels, documentation, and
packaging in electronic form, see Section D.1. of this Chapter.
4. The Labels, Documentation, or Packaging Materials
Are Counterfeit or Illicit
In the fourth element, the government must prove that the packaging or
documentation is “counterfeit” or that the labels are “counterfeit” or “illicit.”
See 18 U.S.C. § 2318(a)(1)(A)-(B). “Counterfeit” is defined as something “that
appears to be genuine, but is not.” 18 U.S.C. § 2318(b)(1), (b)(6). Courts have
determined labels to be counterfeit for purposes of § 2318 where, for example,
a defendant created the labels to accompany or apply to copies of Microsoft
products and reprinted a Microsoft product key for a different copy on the
label, Microsoft Corp. v. Pronet Cyber Techs., Inc., 593 F. Supp. 2d 876, 882
(E.D. Va. 2009); and where DVD labels “appeared to be ‘home made[,]’ were
of poor quality, contained misspellings, and were not centered,” United States
v. Teh, 535 F.3d 511, 520 (6th Cir. 2008).
Counterfeit is distinct from “bootlegged” or “pirated” in that counterfeits
are unauthorized copies of works that are made to appear legitimate, whereas
bootlegged recordings or pirated items do not pretend to be legitimate. See
United States v. Shultz, 482 F.2d 1179, 1180 (6th Cir. 1973) (“Counterfeit
tapes are tapes which are represented to be genuine articles of particular record
companies when, in truth, they are not. The process includes reproducing
the tape itself and also the recognized label of another record company. A
bootleg tape is a reproduction of someone else’s recording or recordings
marketed under a different label.”). See also 18 U.S.C. § 2319A (addressing
the unauthorized recording and trafficking of live musical performances, also
known as “bootlegging”); Chapter II of this Manual.
Counterfeit labels include those made when “counterfeiters have simulated
‘genuine’ labels that have not previously existed,” insofar as these simulated
labels share the same basic criminal purpose as any counterfeit product—
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to defraud the consumer, the manufacturer, and society by trading off the
product’s apparent authenticity. See S. Rep. No. 97-274, at 9 (1981), reprinted
in 1982 U.S.C.C.A.N. 127, 135. “For example, cases have arisen where a
counterfeiter has produced packages and distributed videotapes of a film which
have never been released in that form to the public. The term ‘counterfeit label’
includes such simulated labels.” Id. Except for the Shultz case, supra, the extent
to which such simulated labels are counterfeit for purposes of § 2318 has rarely
been addressed in the courts. Prosecutors handling cases involving simulated
labels may find it helpful to consult with the Computer Crime and Intellectual
Property Section at (202) 514-1026.
An “illicit” label, generally speaking, is a “genuine certificate, licensing
document, registration card, or similar labeling component” intended for use
with one of the enumerated classes of copyrighted works, that a defendant
distributed or used without the work it was intended to accompany or falsely
altered to indicate broader rights than originally intended. 18 U.S.C. § 2318(b)
(4). Specifically, an “illicit” label is one that is:
(A) used by the copyright owner to verify that [a copyrighted work of
the type enumerated above] is not counterfeit or infringing of any
copyright; and
(B) that is, without the authorization of the copyright owner [either]—
(i) distributed or intended for distribution not in connection with
the copy, phonorecord, or work of visual art to which such
labeling component was intended to be affixed by the respective
copyright owner; or
(ii) in connection with a genuine certificate or licensing document,
knowingly falsified in order to designate a higher number of
licensed users or copies than authorized by the copyright owner,
unless that certificate or document is used by the copyright
owner solely for the purpose of monitoring or tracking the
copyright owner’s distribution channel and not for the purpose
of verifying that a copy or phonorecord is noninfringing.
18 U.S.C. § 2318(b)(4). Under subsection (A), an illicit label may include any
of a broad category of labeling components, such as most types of identifying
labels, particularly those that include trademarks, seals, holograms, watermarks,
or other marks intended to show that a product is genuine. Although it is not
clear from the statute’s text and legislative history, presumably the definition
does not include generic labels, such as packing slips, that merely identify a
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particular work, but which the copyright holder did not intend to certify the
work’s authenticity.
Subsection (B) identifies two situations in which a labeling component is
“illicit.” First, a labeling component is illicit when it is distributed, without
the copyright holder’s permission, apart from the original copyrighted item
that the copyright owner intended the labeling component to accompany.
For example, individual “licensing packs” for software that contain various
labels, certificates of authenticity, and documentation and packaging would be
deemed illicit if they were sold without the original media they were intended
to accompany, or were sold with a pirated copy of the media.
Second, a genuine labeling component is illicit when a genuine certificate
of authenticity or similar licensing document has been knowingly falsified to
indicate a higher number of authorized users or copies. For example, business
software often comes in multi-user license packs that contain a single copy
of the software itself on CD-ROM and a license that permits the software to
be run for a certain number of users. If the licensing document for a ten-user
license pack were knowingly falsified to indicate authorization for 100 users,
the falsified licensing document would be illicit.
5. Federal Jurisdiction
The final element of § 2318 requires the government to establish federal
jurisdiction over the offense by proving any one of the following circumstances:
• The offense occurred in a special maritime, territorial, or aircraft
jurisdiction of the United States, § 2318(c)(1)
• Use of or intent to use the mail or facilities of interstate or foreign
commerce in the commission of the offense, § 2318(c)(2)
• In the case of a counterfeit or illicit label, the label was affixed to, enclosed,
or accompanied or designed to be affixed to, enclose, or accompany
certain copyrighted works or a copy of these works: a phonorecord of
a copyrighted sound recording or musical work; a computer program;
a literary work; a pictorial, graphic or sculptural work; a work of visual
art; or copyrighted documentation or packaging, § 2318(c)(3)
• In the case of counterfeit documentation or packaging, the
documentation or packaging itself was copyrighted, § 2318(c)(4)
These jurisdictional elements are listed disjunctively, and therefore any
one will suffice to support a § 2318 charge. For example, where a defendant
trafficked in counterfeit labels for DVDs, the jurisdictional basis for a § 2318
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charge could be met by showing either that the labels were affixed (or designed
to be affixed) to DVD copies of a copyrighted motion picture, or that the
defendant used the mails or other facilities of interstate commerce to traffic in
the labels, or that the defendant trafficked in the special maritime jurisdiction
of the United States. In practice, the most likely basis for jurisdiction will be
copyright. Even when the works are copyrighted, however, prosecutors may
nevertheless find it easier to establish another basis for jurisdiction: a copyright
may be more burdensome to prove or an alternative basis may be relatively
clear. See Chapter II of this Manual, which discusses how to prove the existence
of a copyright.
The jurisdictional element in § 2318(c)(3) for counterfeit or illicit labels that
accompany certain classes of works is worded unusually. It allows jurisdiction if
the labels were affixed or designed to be affixed to copies of sound recordings,
musical works, computer programs, motion pictures, audiovisual works, or
documentation and packaging, if those items were “copyrighted.” It also allows
jurisdiction if the labels were affixed or designed to be affixed to literary works,
pictorial, graphic or sculptural works, or works or visual art, but does not
indicate that these items must have been “copyrighted.” Compare § 2318(c)(3)
(A)-(C), (G), with § 2318(c)(3)(D)-(F). However, these latter classes of works
are subject to copyright protection, and § 2318 intends these terms to have
the same meaning as in the copyright code. See 17 U.S.C. § 102; 18 U.S.C.
§ 2318(b)(3). Therefore, Congress’s omission of the word “copyrighted” from
§ 2318(c)(3)(D)-(F) was probably unintended, and therefore copyright should
be read as necessary to establish jurisdiction under § 2318(c)(3), even for
literary, pictorial, or visual art works.
The government need not prove the defendant knew that his actions fell
within the federal jurisdiction elements set forth in 18 U.S.C. § 2318(c).
Thus, it is unnecessary to prove, for example, that the defendant knew that
the copy of the computer program to which his counterfeit labels were affixed
was copyrighted (see Section B.1. of this Chapter). Cf. United States v. Feola,
420 U.S. 671, 676 n.9 (1975) (“[T]he existence of the fact that confers
federal jurisdiction need not be one in the mind of the actor at the time he
perpetrates the act made criminal by the federal statute.”); United States v.
X-Citement Video, Inc., 513 U.S. 64, 72 n.3 (1994) (affirming Feola as applied
to strictly jurisdictional facts); United States v. Yermian, 468 U.S. 63, 68-70
(1984) (holding that the plain language of 18 U.S.C. § 1001, which is worded

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similarly to § 2318(a), indicates that Congress did not intend “knowingly and
willfully” to apply to jurisdictional element).
6. Venue
The proper venue for a § 2318 prosecution is addressed by general
principles governing venue in criminal cases. Particular attention should be
paid to offenses that involve the use of the mail or transportation in interstate
or foreign commerce, which will occur in most § 2318 offenses.

C.

Defenses
1. Statute of Limitations

Because § 2318 does not contain a specific statute of limitations, the
general five-year statute of limitations for non-capital offenses applies. See 18
U.S.C. § 3282.
2. First Sale (Does Not Apply)
Some defendants have sought to raise a “first sale” defense to a § 2318
charge, particularly a charge involving illicit labels, which, by definition, are
genuine items that may have been obtained by the defendant legitimately.
Although the “first sale” doctrine provides a valid defense to a charge of
copyright infringement (see 17 U.S.C. § 109; Chapter II of this Manual, supra),
permitting a person who has lawfully obtained title to a particular copy of a
work to transfer or dispose of that particular copy without authorization from
the copyright owner, Congress did not incorporate such a defense into § 2318.
Indeed, for Congress to have done so would have eviscerated the purpose of
§ 2318’s illicit labels provision, which is designed to prohibit traffic in genuine
labeling components that may be used to facilitate infringement. Courts have
rejected attempts to raise a first sale defense in the context of § 2318. See
United States v. Harrison, 534 F.3d 1371, 1373 (11th Cir. 2008).

D.

Special Issues
1. Electronic Copies of Labels, Documentation, or Packaging

Although a typical case under § 2318 generally involves labels, docutmentation, or packaging in some sort of physical form, such as an adhesive
decal, a cardboard box, or a manual printed on paper, § 2318 might also be
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applied in certain limited circumstances to cases when either the “original”
or “legitimate” items, or the “counterfeit” or “illicit” copies, or both, are in
electronic or digital form. Section 2318(b)(5) defines documentation and
packaging as items which are “in physical form,” which would not prohibit
trafficking in unauthorized copies of electronic documentation or manuals,
when the original or legitimate versions are only available in electronic form,
e.g., for download over the Internet. It is unclear whether the term “in physical
form” would include a digitally-formatted manual tangibly embodied on a
CD-ROM. Conduct involving unauthorized electronic copies of a physical
version of a documentation or packaging (such as image files scanned from
a paper manual or box), or of documentation that is legitimately distributed
on a CD-ROM, nevertheless may implicate § 2318, either as evidence of a
substantive violation of the trafficking provision, or as an act that aids or abets
such trafficking or furthers a conspiracy to traffic.
The House Report to the 2004 amendments also makes clear that § 2318’s
criminal provisions do not apply to “electronic transmission” of “genuine”
licensing components, documentation, or packaging. See H.R. Rep. No. 108600, at 4 (2004) (stating that the amendments “shall not be construed to
apply ... in any case, to the electronic transmission of a genuine certificate,
licensing document, registration card, similar labeling component, or
documentation or packaging”). This language suggests that the unauthorized
electronic distribution of labeling components that are purely electronic in
their original or legitimate form, such as electronic signatures or watermarks,
does not constitute criminal trafficking under § 2318 (although such conduct
may violate other criminal statutes). However, the statute is silent as to whether
§ 2318 applies to the electronic transmission of labeling components that are
not “genuine,” suggesting that it could be a criminal violation of § 2318 to traffic
in electronic files that contain unauthorized copies of labeling components,
where the original or legitimate labeling components were in physical form
(e.g., trafficking in digital image files that contain a convincing reproduction
of label decals or product packaging, such as would be suitable for printing
additional counterfeit copies of the labels or packaging). Nevertheless, to
date courts have not addressed the extent to which § 2318 may be applied in
situations involving purely electronic labeling components.
2. Advantages of Charging a § 2318 Offense
A § 2318 charge may be an appropriate adjunct or alternative charge when
the offense involves copyright or trademark infringement. In many cases, the
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§ 2318 charge may even be preferable. The mens rea (knowledge) and minimum
threshold of illegal conduct (none) are both lower than the mens rea required
in criminal copyright charges (willfulness) and the monetary and numerical
thresholds for many criminal copyright charges. See Chapter II of this Manual.
The standard of proof may also be lower than for criminal trademark charges,
which require proof that any trademarks used on the counterfeit or illicit
labeling are identical to or substantially indistinguishable from one registered
with the U.S. Patent and Trademark Office. See Chapter III of this Manual.

E.

Penalties

Section 2318(a) provides for a fine or imprisonment or both. Forfeiture
and restitution are also available under § 2318(d).
1. Fines
Under § 2318(a), a defendant may be “fined under this title [18],” which
is an indirect reference to 18 U.S.C. § 3571 (“Sentence of fine”). Under 18
U.S.C. § 3571, an individual can be fined up to $250,000 and an organization
can be fined up to $500,000, or either can be fined twice the offense’s pecuniary
gain or loss, without limit. 18 U.S.C. § 3571(a)-(d).
2. Imprisonment
The maximum term of imprisonment is five years. 18 U.S.C. § 2318(a).
3. Restitution
Section 2318(d) specifies that restitution shall be subject to 18 U.S.C.
§ 2323, the general forfeiture and restitution provision for IP offenses
created by the PRO-IP Act. According to Section 2323(c): “[w]hen a person
is convicted of an offense under [§ 2318, inter alia], the court, pursuant to
sections 3556, 3663A, and 3664 of this title, shall order the person to pay
restitution to any victim of the offense as an offense against property referred
to in section 3663A(c)(1)(A)(ii).” In turn, 18 U.S.C. § 3663A provides for
mandatory restitution to victims of certain crimes, including crimes against
property in Title 18, of which § 2318 is one. 18 U.S.C. § 3663A(c)(1)(A)
(ii). Section 5E1.1 of the U.S. Sentencing Guidelines Manual also provides
for restitution in cases where there is an identifiable victim and restitution
is authorized under 18 U.S.C. § 3663A. Courts have affirmed restitution
orders for convictions under § 2318. See United States v. Chay, 281 F.3d 682,
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686 (7th Cir. 2002) (holding that an 18 U.S.C. § 2318(a) offense is “a crime
against property covered by the Mandatory Victim Restitution Act (MVRA),
18 U.S.C. § 3663A” and affirming an order of $49,941.02 in restitution);
United States v. Elouri, 62 Fed. Appx. 556 (5th Cir. 2003) (affirming an order
on procedural grounds of $136,050 in restitution for a violation of § 2318).
For more on restitution, see Chapter VIII of this Manual.
4. Forfeiture
Seizure, forfeiture, and destruction of items in connection with a violation
of § 2318 is governed by 18 U.S.C. § 2323. See 18 U.S.C. § 2318(d).
Section 2323(b) requires a court, in imposing a sentence for violation of
§ 2318, to order the defendant to forfeit all counterfeit or illicit labels or
other items the making or trafficking of which is prohibited under § 2318,
as well as any property used or intended to be used in the offense, and any
property constituting or derived from proceeds of the offense. Section 2323
also authorizes civil forfeiture of such items, apart from a criminal proceeding.
For more on forfeiture, see Chapter VIII of this Manual.
5. Sentencing Guidelines
Section 2B5.3 is the applicable sentencing guideline. See Chapter VIII of
this Manual. Under § 2B5.3, often the most significant factor in the calculation
of a sentence is the “infringement amount.” See § 2B5.3(b)(1). In copyright
or trademark counterfeiting cases, the infringement amount is generally based
on the number of infringing items multiplied by the retail price of either the
genuine or infringing item. Because labels and packaging are generally not sold
separately through legitimate retail channels, however, § 2318 offenses raise
how such items should be valued for purposes of determining the infringement
amount, particularly where the labels or packaging at issue have not been
affixed to actual copies or goods.
Application Note (2)(A)(vii) addresses valuation in cases under § 2318
involving such “unaffixed” counterfeit or illicit labels (or other items):
(vii) A case under 18 U.S.C. § 2318 or § 2320 that involves
a counterfeit label, patch, sticker, wrapper, badge, emblem,
medallion, charm, box, container, can, case, hangtag,
documentation, or packaging of any type or nature (I) that has
not been affixed to, or does not enclose or accompany a good
or service; and (II) which, had it been so used, would appear to
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a reasonably informed purchaser to be affixed to, enclosing or
accompanying an identifiable, genuine good or service. In such
a case, the “infringed item” is the identifiable, genuine good or
service.
§ 2B5.3 n. 2(A)(vii). Thus, in a determining a Guideline sentence in a § 2318
case, if a counterfeit or illicit label has not been affixed to an actual copy of a
copyrighted work, but the court finds that the label, if it had been used, would
make it appear to a reasonably-informed purchaser that the item to which it
was affixed was genuine, then the infringement amount should be determined
based on the value of the item to which the item was designed to be affixed,
rather than the (generally much lower) value of the label itself.
Application Note 2(A)(vii) was added in 2006 in response to a provision
of the Stop Counterfeiting in Manufactured Goods Act, which directed the
Sentencing Commission to address how the infringement amount should be
calculated for offenses involving labels, documentation, and packaging, that
are not attached to or accompanying copyrighted works. See Pub. L. No. 109181, § 1, 120 Stat. 285 (2006).
Prior to the 2006 Guidelines amendments, § 2B5.3 offered little guidance
as to how unattached labels or packaging should be valued, leading courts
to devise various theories for valuing such items for sentencing purposes. In
United States v. Bao, 189 F.3d 860, 862-63 (9th Cir. 1999), the government
seized 5,000 counterfeit manuals for software and counterfeit packaging
materials such as CD-ROM inserts and product registration cards in Bao’s
print shop. After Bao’s conviction under § 2318 for trafficking in counterfeit
software manuals, the district court sentenced him based on a retail value of
$50 per manual, the black market value of the software plus a manual. The
court’s theory was that the manual had no value apart from the software. Id.
at 862-63, 867. The Ninth Circuit vacated the sentence, holding that the
manuals’ retail value should have been $12 apiece, the retail value of other
comparable genuine manuals the victim sold separate from software. Id. at
866-67. In other words, the appropriate retail value was that of the counterfeit
documentation, not the thing the documentation was to accompany. Cf. U.S.
v. Guerra, 293 F.3d 1279, 1292 (11th Cir. 2002) (§ 2320 case holding that
“[t]he value of the bands and labels is inextricably intertwined with that of the
completed product, as the value of the counterfeit cigars derives primarily from
the degree to which the bands and labels bear marks that are indistinguishable

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from the genuine marks. Thus, the district court did not err by considering
‘infringing items’ to be cigars rather than labels.”).
Just as the retail value might depend on how many products the defendant
had completed or could have completed readily, so might the number of
infringing items. Two appellate courts have ruled that “the number of infringing
items should correspond to the number of completed or nearly completed
counterfeit goods.” U.S. v. Guerra, 293 F.3d 1279, 1293 (11th Cir. 2002)
(citing United States v. Sung, 51 F.3d 92, 94-96 (7th Cir. 1995), appeal after
remand, 87 F.3d 194 (7th Cir. 1996), on remand to, 940 F. Supp. 172 (N.D.
Ill. 1996), rev’g trial court on other grounds, 114 F.3d 1192 (1997)). In both
these cases, the number of infringing items was held to be not the number of
infringing labels or packaging items, but rather the lower number of goods to
which the labels or packaging had been or could readily have been attached.
See id.
However, both these cases concerned sentencing under a previous version
of the counterfeit trademark criminal statute, 18 U.S.C. § 2320, which did
not expressly apply to unattached labels or packaging, as both § 2318 and the
current version of § 2320 now do. Under § 2318 (as well as § 2320), trafficking
in counterfeit labels is not treated as an attempt to traffic in goods to which the
labels might be affixed, but as a separate and complete offense, and therefore,
a defendant’s sentence may properly be calculated based on the number of
labels involved, rather than only on those labels that have already been affixed
to an actual product. Further, Application Note 2(A)(vii) provides that in
determining the infringement amount in § 2318 cases involving labels that, if
used, would lead a reasonable purchaser to believe the items to which the labels
were attached were genuine, the “infringed item” is the item to which the labels
would be attached. Therefore, in such cases, the infringement amount should
be based on the retail value of such item, multiplied by the number of labels.

F.

Other Charges to Consider

When confronted with a case that implicates counterfeit or illicit labels or
counterfeit documentation or packaging, prosecutors may want to consider
the following crimes for charges in addition to 18 U.S.C. § 2318 or in lieu of
such charges if § 2318’s elements cannot be met:
• Copyright infringement, 17 U.S.C. § 506, 18 U.S.C. § 2319, for
any infringement of the underlying copyrighted goods. See, e.g., United
VI. Counterfeit and Illicit Labels

295

•

•

•

•

296

States v. Cohen, 946 F.2d 430, 433-34 (6th Cir. 1991) (affirming
conviction under 18 U.S.C. §§ 2318-2319 for duplicating and
distributing copyrighted movies). A conspiracy or aiding-and-abetting
theory will sometimes be necessary. See Chapter II of this Manual.
Trademark counterfeiting, 18 U.S.C. § 2320, because labels,
documentation, and packaging for copyrighted works often carry
counterfeit reproductions of federally registered trademarks. See, e.g.,
United States v. Beltran, 503 F.3d 1, 2-4 (1st Cir. 2007) (upholding
convictions under 18 U.S.C. §§ 2318-2320 for counterfeit DVDs and
VHS tapes); United States v. Hernandez, 952 F.2d 1110, 1113-14 (9th
Cir. 1991) (affirming conviction under 18 U.S.C. §§ 2318-2320 for
counterfeit audio cassettes and audio cassette labels). See Chapter III of
this Manual.
Mail or wire fraud, 18 U.S.C. §§ 1341, 1343, for schemes that involve
the use of the mails or wire, as long as there is a scheme to defraud.
Cf. United States v. Shultz, 482 F.2d 1179, 1180 (6th Cir. 1973)
(upholding convictions for mail fraud and counterfeit labels under an
earlier version of § 2318, for causing the transportation of a counterfeit
stereo tape cartridge recording in interstate commerce with forged or
counterfeit label). The theory of fraud cannot be merely that the media
was copyrighted, but rather that the defendant must have intended
to defraud either his immediate purchaser or other downstream
purchasers. See Chapter II, Section F. of this Manual.
Racketeer Influenced and Corrupt Organizations (RICO), 18 U.S.C.
§§ 1961-1968, because § 2318 violations serve as RICO predicate acts.
See § 1961(1)(B). RICO charges must be approved by the Department’s
Organized Crime and Gang Section, which can be reached at (202)
514-3594.
Bootleg sound recordings and music videos of live musical
performances, 18 U.S.C. § 2319A. See Chapter II, Section F. of this
Manual.

Prosecuting Intellectual Property Crimes

VII.
Patent
A.

Overview of Patent

Unlike copyright and trademark infringement, there are no criminal
penalties for committing patent infringement. Dowling v. United States, 473
U.S. 207, 227 (1985) (noting that “[d]espite its undoubted power to do
so,” Congress has not provided criminal penalties for patent infringement).
Congress instead has relied on provisions affording owners a civil cause of
action for patent infringement. Id. at 227 n.19. As set forth more fully below,
however, Congress has provided for two criminal provisions relating to patents:
forgery of letters patent, and false marking of patents.
As a threshold matter, it is worth revisiting the differences between patents
and copyrights. Patent rights are available to anyone who invents “any new
and useful process, machine, manufacture, or composition of matter, or any
new and useful improvement thereof.” 35 U.S.C. § 101. A patent grants an
inventor the right to exclude others from making, using, offering for sale, or
selling devices that embody the patented invention. See 35 U.S.C. § 271(a);
Eldred v. Ashcroft, 537 U.S. 190, 216 (2003) (citing Sears, Roebuck & Co. v.
Stiffel Co., 376 U.S. 225, 229 (1964)). The federal government’s authority to
grant patents stems from Article I, Section 8, Clause 8 of the U.S. Constitution,
known as the “Intellectual Property” or “Copyright and Patent” Clause, which
authorizes Congress to enact statutes that “promote the Progress of Science
and useful Arts, by securing for limited Times to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries.” Congress first
exercised this authority to grant patents in 1790, when Congress empowered
the federal government to issue letters patent. Act of Apr. 10, 1790, ch. 7, § 1,
1 Stat. 109 (1790). Like their modern counterparts, “letters patent” contain
a short title of the invention and a “grant” to the patent owner (“patentee”),
and his or her heirs or assigns, of the right to exclude others from making,
using, offering for sale, or selling the invention throughout the United States
or importing the invention into the United States. Cf. Eldred, 537 U.S. at 216;
35 U.S.C. § 154(a)(1). Currently, a patent grant lasts for a term beginning on
the date the U.S. Patent and Trademark Office issues the patent and ending
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20 years from the date on which the patentee filed his or her application for a
patent grant. 35 U.S.C. § 154(a)(2).
Although patents and copyrights share a common constitutional source
(and the concomitant requirement that these exclusive rights are for “limited
Times”), they differ in several meaningful respects. First, copyrights grant
an author the right to exclude certain uses of the author’s expression of an
idea contained in an “original work of authorship,” whereas patents grant an
author the right to exclude others from making, using, and selling devices
or processes that embody the claimed invention. See 17 U.S.C. § 102(a); 35
U.S.C. § 154(a)(1). Second, in exchange for granting the patentee this right
to exclude, the patentee must publicly disclose the invention. Eldred, 537 U.S.
at 216. “For the author seeking copyright protection, in contrast, disclosure is
the desired objective, not something exacted from the author in exchange for
the copyright.” Id. Third, a copyright gives the holder no monopoly on any
knowledge or idea; a reader of an author’s writing may make full use of any fact
or idea acquired by reading the writing. See 17 U.S.C. § 102(b); Eldred, 537
U.S. at 217. A patent, on the other hand, gives the patentee a monopoly on his
invention to prevent the full use by others of the knowledge embodied in the
patent. See Eldred, 537 U.S. at 217.
It is also worth considering the difference between a patent and a trade
secret. The first difference is naturally that trade secret information is protected
only if it is secret (see Chapter IV, Section B.3.a.ii. of this Manual), whereas
a patent is protected even after disclosure. During the patent process, a trade
secret contained in a patent application may lose its trade secret protection
through disclosure only to gain patent protection. (See Chapter IV, Section
C.1.b.ii. of this Manual.) Second, a patent gives its owner an exclusive right
to his invention, even against another who discovered the patented invention
independently, whereas a trade secret, like a copyright, gives its owner no
protection against independent discovery. ConFold Pac., Inc. v. Polaris Indus.,
433 F.3d 952, 958-59 (7th Cir. 2006) (Posner, J.).

B.

Forgery of Letters Patent—18 U.S.C. § 497

Forging “letters patent” (described above) and knowingly passing off
counterfeit letters patent are prohibited by 18 U.S.C. § 497:
Whoever falsely makes, forges, counterfeits, or alters any
letters patent granted or purporting to have been granted by
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the President of the United States; or Whoever passes, utters,
or publishes, or attempts to pass, utter, or publish as genuine,
any such letters patent, knowing the same to be forged,
counterfeited or falsely altered—Shall be fined under this title
or imprisoned not more than ten years, or both.
As of this writing, no published opinions reported an applicable offense
under this provision, although one court noted that Congress enacted the
statute to “criminalize[] activities likely to impugn the reputation or integrity
of the federal government regardless of whether the perpetrator intended
to defraud private citizens.” United States v. Reich, 479 F.3d 179, 189 (2d
Cir. 2007). The statute is one of many “designed to protect the integrity of
government functions” but “do[es] not include the intent to defraud as an
element of the crime of forgery.” United States v. Cowan, 116 F.3d 1360, 1363
(10th Cir. 1997).

C.

False Marking of Patent—35 U.S.C. § 292

To protect patent holders and the public, Congress enacted the false
marking provision, 35 U.S.C. § 292, which provides for both criminal and
civil actions against a defendant for false marking. Section 292(a) creates a
financial punishment for three types of improper marking: (1) representing
that an article is patented when the patent is in fact held by another; (2)
marking as patented an article that is not patented; and (3) falsely claiming that
a patent application has been made or is pending. In 2011, the statute’s scope
was narrowed pursuant to the Leahy-Smith America Invents Act so that it is
no longer a violation of the statute where “[t]he marking of a product ... with
matter relating to a patent that covered that product but has expired.” 35 U.S.C.
§ 292(c). Section 16(b)(4) of the Act makes this and its other amendments to
the false marking statute applicable “to all cases, without exception, that are
pending on, or commenced on or after, the date of the enactment of this Act,”
on September 16, 2011. Leahy-Smith America Invents Act, Pub. L. No. 11229, § 16(b)(4), 125 Stat. 284, 329 (2011).
Congress prohibits false marking in part because a properly marked
patented article provides the public with “a ready means of discerning the status
of the intellectual property embodied in an article of manufacture or design.”
Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 162 (1989). This
is consistent with federal patent policy, which recognizes an “important public
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299

interest in permitting full and free competition in the use of ideas which are
in reality a part of the public domain.” Lear, Inc. v. Adkins, 395 U.S. 653, 670
(1969). “Acts of false marking deter innovation and stifle competition in the
marketplace.” Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1302 (Fed.
Cir. 2009). False marking harms that public interest because it “misleads the
public into believing that a patentee controls the article in question (as well as
like articles), externalizes the risk of error in the determination, placing it on
the public rather than the manufacturer or seller of the article, and increases
the cost to the public of ascertaining whether a patentee in fact controls the
intellectual property embodied in an article.” Clontech Labs., Inc. v. Invitrogen
Corp., 406 F.3d 1347, 1356-57 (Fed. Cir. 2005) (footnote omitted); see also
Calderwood v. Mansfield, 71 F. Supp. 480, 482 (N.D. Cal. 1947) (noting that,
under § 50, the former version of § 292, one purpose of the “false marking”
statute was to “penalize those who would palm off upon the public unpatented
articles, by falsely and fraudulently representing them to have been patented”).
Section 292(a)’s first prohibition protects patent holders by prohibiting
an individual, without a patent holder’s consent, from marking or using in
advertising for a product:
the words “patent,” “patentee,” or the like, with the intent of
counterfeiting or imitating the mark of the patentee, or of
deceiving the public and inducing them to believe that the
thing was made, offered for sale, sold, or imported into the
United States by or with the consent of the patentee.
35 U.S.C. § 292(a).
Section 292(a)’s second and third paragraphs protect the public from false
or misleading patent claims. The second paragraph prohibits individuals from
marking or using in advertising the word “patent” in connection with any
“unpatented article” for the purpose of deceiving the public. Clontech, 406 F.3d
at 1352. For § 292 to apply, the mismarked article must “actually exist” and
“be completed.” Lang v. Pac. Marine & Supply Co., 895 F.2d 761, 765 (Fed.
Cir. 1990).
Although not defined in the statute, an “unpatented article” is one that is
not covered by any claim of any of the patents marked on the article. Or, as
the Federal Circuit has held, an “unpatented article” means that “the article
in question is not covered by at least one claim of each patent with which the
article is marked. Thus, in order to determine if an article is ‘unpatented’ for
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purposes of section 292, it must be first determined whether the claims of a
patent cover the article in question.” Clontech, 406 F.3d at 1352 (emphasis
added). Although earlier courts consistently had found no violation of § 292
“by a patentee who marks patented articles with more patents than actually
cover the item,” Genlyte Thomas Grp. LLC v. National Serv. Indus., Inc., 262
F. Supp. 2d 753, 756 (W.D. Ky. 2003) (internal citations and quotations
omitted), the Federal Circuit’s decision in Clontech appears to have foreclosed
this interpretation of an “unpatented article.” Brinkmeier v. Graco Children’s
Products Inc., 684 F. Supp. 2d 548, 551 (D. Del. 2010) (“The court rejects
Defendant’s contention that no actionable mismarking can occur if the product
at issue is covered by at least one claim of the patents listed.”); DP Wagner Mfg.
Inc. v. Pro Patch Sys., Inc., 434 F. Supp. 2d 445, 455 (S.D. Tex. 2006) (holding
that the Federal Circuit’s construction of “unpatented article” is controlling,
“notwithstanding the fact that other courts may have interpreted the term
differently in the past”).
Prior to the 2011 passage of the Leahy-Smith America Invents Act, the
Federal Circuit had held that “an article covered by a now-expired patent is
‘unpatented.’” Pequignot v. Solo Cup Co., 608 F.3d 1356, 1361 (Fed. Cir. 2010);
see also Bonito Boats, 489 U.S. at 159 (An article that “has been freely exposed to
the public ... stands in the same stead as an item for which a patent has expired
or been denied: it is unpatented and unpatentable”). “Thus, as with a neverpatented article, an article marked with an expired patent number imposes on
the public ‘the cost of determining whether the involved patents are valid and
enforceable.’” Pequignot, 608 F.3d at 1362 (quoting Clontech, 406 F.3d at 1357
n.6). However, as already noted, the Act amended the false marking statute
so that this conduct no longer constitutes a violation of § 292(a). 35 U.S.C.
§ 292(c).
Notably, “the omission of ‘applicable patents’ from a label listing patents
purporting to cover the contents of a box of course cannot, in itself, be a
violation of the false marking statute.” Arcadia Mach. & Tool, Inc. v. Sturm,
Ruger & Co., 786 F.2d 1124, 1125 (Fed. Cir. 1986) (emphasis in original).
In the same vein as § 292(a)’s second paragraph, the third paragraph
prohibits individuals from marking or using in advertising the words “patent
applied for” or “patent pending” for the purpose of deceiving the public when
a patent application has neither been made nor is pending. 35 U.S.C. § 292(a).

VII. Patent

301

Section 292(a) imposes a fine of not more than $500 for every offense.
35 U.S.C. § 292(a). Thus, “the statute’s plain language requires the penalty
to be imposed on a per article basis,” not on a “per decision” nor a “timebased approach.” Forest Group, 590 F.3d at 1301-04 (reversing district court’s
holding that penalty be imposed for each “decision” to mark multiple articles
falsely). “Section 292 clearly requires a per article fine.” Id. at 1302. The “per
article” unit of prosecution is consistent with the purpose behind the statute
because “[t]he more articles that are falsely marked[,] the greater the chance
that competitors will see the falsely marked article and be deterred from
competing.” Id. at 1303.
Significantly, the statute was amended in 1952 to remove any minimum
fine. Id. at 1302. Thus, “district courts have the discretion to assess the per
article fine at any amount up to $500 per article.” Id. Courts, for example,
have the discretion to impose a penalty of a fraction of a penny per article.
Id. at 1304. As a result, courts may use their “discretion to strike a balance
between encouraging enforcement of an important public policy and imposing
disproportionately large penalties for small, inexpensive items produced in
large quantities.” Id. Because the fine for an infraction of 35 U.S.C. § 292 is
a criminal fine, that fine is increased by 18 U.S.C. § 3571 to a maximum of
$5,000 for individuals ($10,000 for corporations) or twice the monetary gain
or loss. See 18 U.S.C. § 3571(b)(2), (b)(7), (c)(2), (c)(7), (d).
Prior to the Leahy-Smith America Invents Act, § 292(b) provided for a civil
qui tam remedy, which enabled any person to sue for the statutory penalty set
forth in § 292(a) and retain one-half of the recovery, leaving the other half “to
the use of the United States.” 35 U.S.C. § 292(b) (2010); Boyd v. Schildkraut
Giftware Corp., 936 F.2d 76, 79 (2d Cir. 1991); Filmon Process Corp. v. SpellRight Corp., 404 F.2d 1351, 1355 (D.C. Cir. 1968) (holding that Ҥ 292(b),
while penal, is not a criminal statute”). “The patentee is given this remedy to
protect his patent position, and as a practical matter, the patentee is the only
likely enforcer of it, as recovery requires proof that the statements were made
without his consent.” Filmon, 404 F.2d at 1355.
The Leahy-Smith America Invents Act made two substantive changes
impacting the predecessor statute’s qui tam remedy. First, it eliminated the qui
tam action. The Act added to section 292(a) that “[o]nly the United States may
sue for the penalty authorized by this subsection,” and removed the qui tam
action from section 292(b). America Invents Act § 16(b)(1) & (2). Second, the
Act replaced the qui tam remedy with a civil compensatory damages action: “A
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person who has suffered a competitive injury as a result of a violation of this
section may file a civil action in a district court of the United States for recovery
of damages adequate to compensate for the injury.” 35 U.S.C. § 292(b).
However, because criminal prosecutions pursuant to § 292 are rare,
reported qui tam actions under the predecessor version of the false marking law
are still helpful authority for interpreting the false marking statute in criminal
cases. For example, at least one court rejected a private enforcement pursuant
to § 292(b) because, inter alia, “the patent markings about which Plaintiffs
complain were found on the packaging, and not on the product.” Rainworks
Ltd. v. Mill-Rose Co., 609 F. Supp. 2d 732, 739 (N.D. Ohio 2009) (holding
that “[b]ecause marking the outer packaging, when marking the product could
be done, is insufficient for the notice requirements of 35 U.S.C. § 287(a),
the actions of Defendants ... are equally insufficient for false marking liability
under the penal statute, 35 U.S.C. § 292(a)”). In other words, if the marking
is insufficient to meet patent law’s notice requirement, then the marking is also
insufficient to support a claim under false marking statute.
Consistent with the express language of the statute, courts have held that 35
U.S.C. § 292(a) requires the government to prove that the defendant intended
to deceive or counterfeit. See Arcadia, 786 F.2d at 1125 (affirming holding that
false marking statute was not violated where there was no evidence of intent
to deceive). Thus, accidental or unintentional mismarking is not a violation.
London v. Everett H. Dunbar Corp., 179 F. 506, 510 (1st Cir. 1910) (holding
that interpreting patent claims is not an exact science, and hence where one
“has an honest, though mistaken, belief that upon a proper construction of
the patent it covers the article which he marks,” the requisite intent to deceive
would not be shown); Brose v. Sears, Roebuck & Co., 455 F.2d 763, 768-69 (5th
Cir. 1972) (same).
“Intent to deceive is a state of mind arising when a party acts with sufficient
knowledge that what it is saying is not so and consequently that the recipient
of its saying will be misled into thinking that the statement is true.” Clontech,
406 F.3d at 1352 (citing Seven Cases v. United States, 239 U.S. 510, 517-18
(1916)). Using “objective standards,” the prosecution may establish a rebuttable
presumption of the requisite intent to deceive where the government proves
both (1) the fact of misrepresentation and that (2) the party making it had
knowledge of its falsity. See id. (citing Norton v. Curtiss, 433 F.2d 779, 79596 (C.C.P.A. 1970)); Pequignot, 608 F.3d at 1362-63 (“the combination of a
false statement and knowledge that the statement was false creates a rebuttable
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303

presumption of intent to deceive the public, rather than irrebuttably proving
such an intent”). A defendant’s “mere assertion” that he did not intend to
deceive will not allow him to rebut the presumption. Pequignot, 608 F.3d at
1363; Clontech, 406 F.3d at 1352, 1353 n.2 (noting that “the inference of intent
to deceive cannot be defeated with blind assertions of good faith where the
patentee has knowledge of mismarking”). By the same token, “mere knowledge
that a marking is false is insufficient to prove intent if [the defendant] can
prove that it did not consciously desire the result that the public be deceived.”
Pequignot, 608 F.3d at 1363. “Thus, a good faith belief that an action is
appropriate ... can negate the inference of a purpose of deceiving the public.”
Id. at 1364 (holding that advice of counsel and purpose other than deceiving
the public sufficient to rebut presumption of intent to deceive).
In addition, “[w]here the article marked is obviously very remote from the
patent referred to in justification of the marking, this difference alone may be
sufficient to show an intention to deceive; but where the difference is slight,
and the question of the breadth of the invention or of the claims is so close
as to permit of an honest difference of opinion,” then proof of such intent
is more difficult. London, 179 F. at 510. Hence, to show knowledge of the
misrepresentation, the government must show beyond a reasonable doubt that
the articles in question were in fact mismarked, and that defendant did not
have a reasonable belief that the articles were properly marked (i.e., covered by
a patent or patent application). Cf. Clontech, 406 F.3d at 1352-53.

D.

No Prosecution for Interstate Transportation or
Receipt of Stolen Property—18 U.S.C. §§ 2314,
2315

The interstate transportation of stolen property statute, 18 U.S.C. § 2314,
does not allow prosecution of a person for the interstate distribution of patentinfringing goods when the only theory for the property’s being stolen is that
it infringes a patent. See Dowling v. United States, 473 U.S. 207, 227 (1985)
(dicta). The same dicta would likely apply to the interstate receipt of stolen
property (18 U.S.C. § 2315).

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VIII.
Penalties, Restitution,
and Forfeiture
A.

Introduction

This Chapter discusses the penalties for intellectual property crime,
concentrating on the statutory sentencing factors, the United States Sentencing
Guidelines (the “Guidelines”), restitution, and forfeiture.
The Supreme Court’s seminal decision in United States v. Booker, 543
U.S. 220 (2005), changed the landscape of federal criminal sentencing. In
Booker, the Supreme Court held that mandatory application of the Guidelines
violated the Sixth Amendment right to trial by jury. Accordingly, the Supreme
Court made the Guidelines advisory and excised the statutory provision which
allowed departures only under certain very limited circumstances. See 18
U.S.C. § 3553(b)(1).
The Guidelines still occupy a central role in sentencing, but are now
just one of several statutory factors courts must consider. See 18 U.S.C. §
3553(a). Generally, sentencing courts will first consult the Guidelines, which
will normally include calculating an advisory range of imprisonment. See
Booker, 543 U.S. at 264; Gall v. United States, 552 U.S. 38, 46 (2007); Rita
v. United States, 551 U.S. 338, 347-48 (2007); see also United States v. Crosby,
397 F.3d 103, 111 (2d Cir. 2005) (“[T]he excision of the mandatory aspect
of the Guidelines does not mean that the Guidelines have been discarded.
On the contrary, sentencing judges remain under a duty with respect to the
Guidelines--not the previously imposed duty to apply the Guidelines, but
the continuing duty to ‘consider’ them, along with the other factors listed
in section 3553(a).”). The Guidelines are not entitled to greater weight than
the other § 3553(a) factors. See Gall, 552 U.S. at 51 (deferential abuse-ofdiscretion standard applies to sentencing decisions both inside and outside of
Guidelines range). After a Guideline determination is made, sentencing courts
then consider all of § 3553(a) factors. See id. at 50.
Appellate courts now review federal sentences for “reasonableness.” Booker,
543 U.S. at 260-61. This is both a procedural and a substantive inquiry. A
305

sentence may be unreasonable if the sentencing court commits procedural
error by, among other things, failing to consider all of the factors in § 3553(a),
or treating the Guidelines as mandatory. Gall at 51. Substantive reasonableness
is based on the totality of the circumstances, including any variance from
the Guidelines range. Id. But while a sentencing court may presume that a
Guidelines sentence is reasonable, see Rita, 551 U.S. at 347, a non-Guidelines
sentence based upon consideration of all of the § 3553 factors may also be
reasonable. See Gall, 552 U.S. at 51 (reviewing courts “must give due deference
to the district court’s decision that the § 3553(a) factors, on a whole, justify the
extent of the variance”).

B.

The Statutory Sentencing Factors

This subsection discusses how courts have used the following § 3553(a)
sentencing factors in intellectual property cases:
(a) Factors to be considered in imposing a sentence.--The
court shall impose a sentence sufficient, but not greater than
necessary, to comply with the purposes set forth in paragraph
(2) of this subsection. The court, in determining the particular
sentence to be imposed, shall consider-(1) the nature and circumstances of the offense and the
history and characteristics of the defendant;
(2) the need for the sentence imposed-(A) to reflect the seriousness of the offense, to promote
respect for the law, and to provide just punishment
for the offense;
(B) to afford adequate deterrence to criminal conduct;
(C) to protect the public from further crimes of the
defendant; and
(D) to provide the defendant with needed educational
or vocational training, medical care, or other
correctional treatment in the most effective manner;
(3) the kinds of sentences available;

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Prosecuting Intellectual Property Crimes

(4) the kinds of sentence and the sentencing range
established for-(A) the applicable category of offense committed by
the applicable category of defendant as set forth in
the guidelines-(i) issued by the Sentencing Commission pursuant
to section 994(a)(1) of title 28, United States
Code, subject to any amendments made to
such guidelines by act of Congress (regardless
of whether such amendments have yet to be
incorporated by the Sentencing Commission
into amendments issued under section 994(p)
of title 28); and
(ii) that, except as provided in section 3742(g), are
in effect on the date the defendant is sentenced;
or
(B) in the case of a violation of probation or supervised
release, the applicable guidelines or policy
statements issued by the Sentencing Commission
pursuant to section 994(a)(3) of title 28, United
States Code, taking into account any amendments
made to such guidelines or policy statements
by act of Congress (regardless of whether such
amendments have yet to be incorporated by the
Sentencing Commission into amendments issued
under section 994(p) of title 28);
(5) any pertinent policy statement-(A) issued by the Sentencing Commission pursuant to
section 994(a)(2) of title 28, United States Code,
subject to any amendments made to such policy
statement by act of Congress (regardless of whether
such amendments have yet to be incorporated by
the Sentencing Commission into amendments
issued under section 994(p) of title 28); and

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307

(B) that, except as provided in section 3742(g), is in
effect on the date the defendant is sentenced.
(6) the need to avoid unwarranted sentence disparities
among defendants with similar records who have been
found guilty of similar conduct; and
(7) the need to provide restitution to any victims of the
offense.
18 U.S.C. § 3553(a). While courts need not engage in “robotic incantation” of
the § 3553(a) factors, see Crosby, 397 F.3d at 113, Booker and its progeny have
spurred sentencing courts to emphasize and articulate their reliance on these
statutory factors, notwithstanding the applicable Guidelines range.
This is clearly evident in intellectual property cases. Sentencing courts have
used the § 3553(a) factors to justify sentences above the Guidelines range. See
United States v. Williams, 526 F.3d 1312, 1322-23 (11th Cir. 2008) (in trade
secret case, affirming sentence above the Guidelines range considering § 3553(a)
factors, including: (i) that the defendant lied to the court about her criminal
history; (ii) that the defendant was well-educated and did not require vocational
education; (iii) the need to protect trade secrets; and (iv) the tremendous harm
to the victim had the defendant succeeded); United States v. Bailey, 286 Fed.
Appx. 678, 682 (11th Cir. 2008) (in copyright infringement case, sentencing
court relied on § 3553(a) evaluation to sentence above the Guidelines range
where defendant violated supervised release conditions, highlighting a need
for deterrence in light of the defendant’s three consecutive release violations);
United States v. Sow, 180 Fed. Appx. 278, 278-79 (2d Cir. 2006) (in affirming
sentence, noting “the District Court found that ‘it is clearly Congress’ policy
decision to treat seriously and punish with significant sentences these sorts of
intellectual property and music pirating offenses,’ which relates directly to the
‘seriousness of the offense.’ See 18 U.S.C. § 3553(a)(2)(A).”).
Courts also have used § 3553(a) analysis to support Guidelines sentences,
including when defendants have complained that a correctly calculated
Guidelines range is itself unfair. See United States v. Thomas, 331 Fed. Appx. 263,
265 (4th Cir. 2009) (in trademark counterfeiting case, affirming Guidelines
sentence supported by § 3553(a) evaluation that considered defendant’s
“lengthy involvement in counterfeit trafficking, his decision to involve his
family members in the illegal activity and the scale of his operations,” and also
distinguished defendant’s case from that of his co-conspirators who received
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lighter sentences); United States v. Four Pillars Enter. Co., 253 Fed. Appx. 502,
513 (6th Cir. 2007) (affirming Guidelines sentence meted out by district
court considering § 3553(a) factors, including: (i) victim impact statements;
(ii) the ongoing nature of the scheme; (iii) the defendants’ ability to pay a
fine; and (iv) the defendants’ use of the trade secret owner’s own employee for
economic espionage); United States v. Lozano, 490 F.3d 1317, 1324-25 (11th
Cir. 2007) (in trademark counterfeiting case, affirming a Guidelines sentence
supported by § 3553(a) factors and further finding that even if the Guidelines
calculation were erroneous, the sentence would still have been reasonable
based on the § 3553(a) factors, especially the seriousness of the offense—a
five-year counterfeiting operation that resulted in at least ten seized shipments
of counterfeit cell phone parts; continued even after the defendants knew they
were under investigation; and was international, stretching from China to
Central America); United States v. Sagendorf, 445 F.3d 515, 518 (1st Cir. 2006)
(affirming a Guidelines sentence where the district court rejected defendant’s
contention that the Guidelines range was unfairly high, citing as part of a
§ 3553(a) the seriousness of the offense and the need for general deterrence,
even though specific deterrence might have required less).
Finally, courts have used § 3553(a) factors to support sentences below
the Guidelines range. See United States v. Jiang, No. 09-CR-34, 2009 WL
3254434, at *2 (E.D.N.Y. October 9, 2009) (in trademark counterfeiting case,
imposing 30-month sentence, substantially below the 70-87 month Guidelines
range, citing § 3553(a) factors, including defendant’s “strong work history
and many friends and supporters in the community,” the adequacy of the
sentence to achieve both “general” and “specific” deterrence, the defendant’s
limited employment prospects and his remorse, even while acknowledging
that such violations “destroy American commerce”); United States v. Kim, No.
07-0170-S-BLW, 2008 U.S. Dist. LEXIS 80043, at *6-7 (D. Idaho May 8,
2008) (in trademark counterfeiting case, imposing a 1-month sentence, below
the 10-16 month Guidelines range, because of § 3553(a) factors, including the
nature of offense—the sale of t-shirts in a remote location at prices far below
those of genuine goods—and the history and characteristics of the defendant
—55, married with five children, all U.S. citizens, with no criminal history and
unlikely to reoffend, and facing deportation were a longer sentence imposed);
United States v. Arman, No. 04-C-6617, 2006 U.S. Dist. LEXIS 4592, at
*3-6 (N.D. Ill. February 2, 2006) (in trademark counterfeiting case, imposing
sentence substantially below the Guidelines range based on consideration of
§ 3553(a) factors: (i) no health and safety concerns—defendant sold counterfeit
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cameras; (ii) trademark owner not harmed because counterfeits were obviously
not genuine; and (iii) no apparent link to organized crime).
The common theme from these cases is that sentencing courts now ignore
or trivialize the § 3553(a) factors at their peril. See Gall, 552 U.S. at 50-51;
United States v. Kononchuk, 485 F.3d 199, 204-06 (3rd Cir. 2007) (in trademark
counterfeiting case, remanding for resentencing because district court merely
gave “rote statement” of § 3553(a) factors in imposing probationary sentence
substantially below the Guidelines range, while declining to address any of
the government’s “cogent” objections, including (i) the disparity in treatment
with co-conspirator who was far less culpable and also cooperated fully, but
also received a sentence of probation, (ii) the sophistication of the defendant’s
scheme, and (iii) the inappropriateness of the court’s offer to impose probation
if the defendant, who had wealthy in-laws, would pay restitution on an
accelerated schedule).

C.

Sentencing Guidelines

This subsection addresses the interpretation and application of the United
States Sentencing Guidelines (U.S.S.G.) in intellectual property prosecutions,
primarily § 2B1.1 for Economic Espionage Act cases, § 2B5.3 for all other
intellectual property offenses, and § 3B1.3 for crimes in which the defendant
abused a position of trust or used a special skill. This subsection should be read
in conjunction with the sections covering penalties in the chapters that present
the substantive offenses, as well as with the chapter on victims’ rights.
As with other crimes, prosecutors should generally continue to seek
sentences within the Guidelines range in intellectual property prosecutions.
The intellectual property Guidelines have been intricately fashioned through
amendment and re-amendment, often incorporating and reacting to court
decisions. For general guidance on this issue, prosecutors should consult
Attorney General Eric Holder’s Memorandum on Department Policy on
Charging and Sentencing (May 19, 2010), available at http://www.justice.
gov/oip/holder-memo-charging-sentencing.pdf, which supersedes all prior
memoranda, as well as USAM 9-27.710-760.
For assistance with any sentencing issues specific to intellectual property
crimes, please call CCIPS at (202) 514-1026 for assistance.

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1. Offenses Involving Copyright (Including Bootleg Music,
Camcorded Movies, and the Unauthorized Use of Satellite, Radio,
and Cable Communications), Trademark, Counterfeit Labeling,
and the DMCA
a. Applicable Guideline is § 2B5.3
Sentencing calculations for the following offenses are governed by U.S.S.G.
§ 2B5.3:
• Criminal copyright infringement, 17 U.S.C. § 506, 18 U.S.C. § 2319
• Criminal violations of the Digital Millennium Copyright Act (DMCA),
17 U.S.C. § 1204
• Trafficking in counterfeit labels, illicit labels, and counterfeit
documentation or packaging, 18 U.S.C. § 2318
• Trafficking bootleg audio and video recordings of live musical
performances, 18 U.S.C. § 2319A
• Unauthorized recording of motion pictures in a movie theater, 18
U.S.C. § 2319B
• Trafficking in counterfeit trademarked, service-marked, or certificationmarked goods, services, and labels, documentation, and packaging for
goods and services, 18 U.S.C. § 2320
• Unauthorized reception of cable and satellite service, 47 U.S.C.
§§ 553(b)(2), 605 and 18 U.S.C. § 2511
The Guidelines’ Statutory Index, U.S.S.G. App. A, refers these statutes to
U.S.S.G. § 2B5.3.
Section 2B5.3 has been amended a number of times over the last decade.
For example, on May 1, 2000, it was amended to “ensure that the applicable
guideline range for a defendant convicted of a crime against intellectual
property” would be “sufficiently stringent to deter such a crime and to
adequately reflect” consideration of “the retail value and quantity of the items
with respect to which the crime against intellectual property was committed.”
No Electronic Theft (NET) Act of 1997, Pub. L. No. 105-147, § 2(g), 111
Stat. 2678 (1997). Among other things, the May 2000 amendments increased
the applicable base offense level from 6 to 8 and increased the number and type
of special offense characteristics to include not only the infringement amount,
but also characteristics for manufacturing, uploading, or importing infringing
items; for infringement not committed for commercial advantage or private
financial gain; and for risk of serious bodily injury or possession of a dangerous
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weapon in connection with the offense. See U.S.S.G. App. C (Amendments
590, 593).
On October 24, 2005, § 2B5.3 was amended under emergency amendment
authority, pursuant to the Family Entertainment and Copyright Act of 2005,
which: (i) created a new intellectual property offense, “Unauthorized recording
of Motion pictures in a Motion picture exhibition facility,” codified at 18 U.S.C.
§ 2319B; and (ii) directed the United States Sentencing Commission (the
“Commission”) to “review and, if appropriate, amend the Federal sentencing
guidelines and policy statements applicable to persons convicted of intellectual
property rights crimes ....” Family Entertainment and Copyright Act of 2005,
Pub. L. No. 109-9, §§ 102(a), 105(a), 119 Stat. 218, 218-220, 222-23 (2005).
Among other things, the October 2005 amendment: (i) added a new specific
offense characteristic (2) addressing infringement of pre-release works; (ii)
renumbered offense characteristics (2)-(4) as offense characteristics (3)-(5); (iii)
clarified the definition of uploading for technical purposes; (iv) clarified that the
court can estimate the infringement amount using any relevant information;
and (v) provided a reference in the Guidelines’ statutory index, Appendix A,
assigning the new camcording offense, 18 U.S.C. § 2319B, to § 2B5.3. See
U.S.S.G. App. C (Amendment 675). On November 1, 2006, the amendment
was repromulgated as permanent, with slight changes to the definition of
uploading contained in the original. See U.S.S.G. App. C (Amendment 687).
On September 12, 2006, § 2B5.3 was amended again under emergency
amendment authority, pursuant to the Stop Counterfeiting in Manufactured
Goods Act, which directed the Commission to consider items, such as
counterfeit labels and DMCA circumvention devices, that merely facilitate
infringement. See Stop Counterfeiting in Manufactured Goods Act, Pub. L.
No. 109-181, § 1, 120 Stat. 285, 287-88 (Mar. 16, 2006). The September
2006 amendment provided that in cases under 18 U.S.C. § 2318 or § 2320
involving counterfeit labels, the infringement amount is based on the retail
value of the infringed items to which the labels would have been affixed. See
U.S.S.G. App. C (Amendment 682). On November 1, 2007, the amendment
was repromulgated as permanent, adding a provision addressing downward
departures for overstated infringement amounts, and several provisions
concerning DMCA violations: (i) making § 2B5.3 the applicable guideline;
(ii) clarifying that the infringement amount is the retail value of the work
accessed; (iii) adding a 2-level enhancement under § 2B5.3; and (iv) making
the application of the special skill adjustment under § 3B1.3 discretionary.
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See U.S.S.G. App. C (Amendment 704); see also Section E.5. of Chapter III
(Trademark) of this Manual.
On November 1, 2009, § 2B5.3 was amended again, this time responding
to the Prioritizing Resources and Organization for Intellectual Property (PROIP) Act of 2008, which added statutory sentencing enhancements to 18 U.S.C.
§ 2320 providing that if an offender causes or attempts to cause serious bodily
injury, the statutory maximum term of imprisonment is increased from 10
years to 20 years; if the offender causes or attempts to cause death, the statutory
maximum is increased to any term of years (or to life). See PRO-IP Act, Pub.
L. No. 110-403, § 205, 122 Stat. 4256, 4261-62 (2008). The November 2009
amendment: (i) clarified that the enhancement in § 2B5.3(b)(5), which applies
when the offense involved the risk of serious bodily injury, also applies when the
offense involved the risk of death; and (ii) increased the minimum offense level
in such a situation from level 13 to level 14. See U.S.S.G. App. C (Amendment
735). This brought § 2B5.3 back into parallel with § 2B1.1, reflecting the
Commission’s prior judgment that “aggravating conduct in connection with
infringement cases should be treated under the guidelines in the same way it is
treated in connection with fraud cases.” Id. (Amendment 590).
As is discussed in Section C.2. of this Chapter, U.S.S.G. § 2B1.1 is the
applicable Guideline for the Economic Espionage Act.
b. Base Offense Level
The base offense level under U.S.S.G. § 2B5.3 is 8.
c. Adjust the Offense Level According to the “Infringement Amount”—
U.S.S.G. § 2B5.3(b)(1)
Under U.S.S.G. § 2B5.3(b)(1), the base offense level is adjusted according
to the “infringement amount,” an estimate of the magnitude of infringement.
“Similar to the sentences for theft and fraud offenses, the sentences for defendants
convicted of intellectual property offenses should reflect the nature and
magnitude of the pecuniary harm caused by their crimes. Accordingly, similar
to the loss enhancement in the theft and fraud guideline, the infringement
amount in subsection (b)(1) serves as a principal factor in determining the
offense level for intellectual property offenses.” U.S.S.G. § 2B5.3 cmt. backg’d.
The mechanics of calculating the infringement amount are covered in U.S.S.G.
§ 2B5.3 cmt. n.2.

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i. Formula
The infringement amount is generally calculated by multiplying the
number of infringing goods by the goods’ retail value. See U.S.S.G. § 2B5.3
cmt. n.2(A),(B).
If the defendant infringed different types of items, the infringement amount
is the sum of the individual infringement amounts for each type of item. Id.
cmt. n.2(D). The infringement amount for each type of item is calculated
independently of the others, including whether the retail value should be that
of an infringing (counterfeit) item or an infringed (legitimate) item. Id. See
Section C.1.c.iii. of this Chapter. The individual infringement amounts are
then aggregated into a total infringement amount, which is plugged into the
loss table in U.S.S.G. § 2B1.1. See Section C.1.c.v. of this Chapter.
ii. Number of Infringing Items
The number of infringing items may be easy to calculate. Victims or their
representatives can often help verify the number when the number depends
on whether an item’s copyright or trademark has been registered. For a list
of industry associations that represent victims, consult Appendix G of this
Manual or call CCIPS at (202) 514-1026. When the number of infringing
items is difficult or impossible to calculate, however, reasonable estimates are
allowed. See U.S.S.G. § 2B5.3, cmt. n.2(E). See also Section C.1.c.iv. of this
Chapter.
In cases under 18 U.S.C. § 2318 or § 2320, which involve counterfeit
labels that have not been affixed to, or packaging that does not actually enclose
or accompany, a good or service, count as the infringing items those labels
and packaging which, “had [they] been so used, would appear to a reasonably
informed purchaser to be affixed to, enclosing or accompanying an identifiable,
genuine good or service.” U.S.S.G. § 2B5.3, cmt. n.2(A)(vii). In DMCA
cases, count as the infringing items those “circumvention devices” which were
used or designed to “access ... [a] copyrighted work.” Id. cmt. n.2(A)(viii).
“‘Circumvention devices’ are devices used to perform the activity described in
17 U.S.C. 1201(a)(3)(A) and 1201(b)(2)(A).” Id. cmt. n.1.
A recurring question is whether the infringement amount should include all
the infringing items that the defendant acquired or only those that he provided
to another, such as a customer or co-conspirator. For the offenses of trafficking
in counterfeit goods and labels, the infringement amount should include all
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items the defendant acquired because the term “traffic” is defined to include
obtaining control over an infringing item with the “intent to ... transport,
transfer, or otherwise dispose of ” it. 18 U.S.C. §§ 2320(f )(5), 2318(b)(2).
This applies equally if the defendant is convicted of attempting or conspiring
to traffic in counterfeit goods. See 18 U.S.C. § 2320(a).
Similarly, criminal copyright infringement includes the unauthorized
“reproduction or distribution” of copyrighted works (emphasis added), and thus
the infringement amount includes all infringing items, regardless of whether
they were transferred to others. 17 U.S.C. § 506(a)(1)(B). The bootlegging
and camcording statutes also criminalize the production of infringing items,
regardless of distribution. See 18 U.S.C. §§ 2319A(a)(1), 2319B(a). Finally,
the DMCA prohibits the production of infringing items—by circumventing
protective technological measures—and does not require distribution. See 17
U.S.C. § 1201(a)(1)(A).
Still open is the question of whether and to what extent to include items
that are incomplete, such as items in the process of production. This issue is
discussed at length in Section E.5. of Chapter III of this Manual (sentencing
issues concerning counterfeit marks).
iii. Retail Value
The major issues with determining the retail value are what to do when
the items have not been fully manufactured, how to value items that facilitate
infringement, which market should be used for reference, and whether to use
the value of a counterfeit or a legitimate item. These questions are addressed
below.
Incompletely Manufactured Items
How to value items whose manufacture is incomplete is treated in Section
E.5. of Chapter III and E.5. of Chapter VI of this Manual.
Items that Facilitate Infringement Such as Labels and DMCA
Circumvention Devices
For cases under 18 U.S.C. § 2318 or § 2320 involving counterfeit labels
or packaging, the infringement amount is based on the retail value of the
infringed item, which is the “identifiable, genuine good or service” to which
the label would have been affixed or the packaging would have enclosed or
accompanied. U.S.S.G. § 2B5.3 cmt. n.2(A)(vii). For DMCA cases, the
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infringement amount is also based on the retail value of the infringed item,
which is the “price the user would have paid to access lawfully the copyrighted
work, and the ‘infringed item’ is the accessed work.” Id. cmt. n.2(A)(viii).
Choosing the Correct Market
“[T]he ‘retail value’ of an infringed item or an infringing item is the
retail price of that item in the market in which it is sold.” U.S.S.G. § 2B5.3
cmt. n.2(C). To define the relevant market in which the items are sold, the
government should focus on the market’s geographic location, whether it
exists on the Internet or in real-world storefronts, and whether it is sold in a
legitimate market or a black market.
Infringing/Counterfeit vs. Infringed/Authentic Retail Values
Infringing items often trade for much less than authentic items. Using
the retail value of one rather than the other can easily mean the difference
between months and years in prison, if not between prison and probation.
Consequently, whether to use the retail value of counterfeit or authentic items
is often the predominant issue at sentencing.
The general rule of fitting the punishment to the harm applies to selecting
the retail value. Intellectual property crimes create four basic types of harm: (1)
the fraud on consumers who were tricked into buying something inauthentic
(at the defendant’s prices); (2) the legitimate income that rights holders lost (at
legitimate prices) when consumers mistakenly bought the defendant’s items;
(3) the rights holders’ inability to control the use of their property, whether
consumers were defrauded or not; and (4) the defendant’s unjust enrichment
(at the defendant’s prices) by using the rights-holder’s intellectual property
unlawfully.
To value these harms, the law simplified the inquiry into whether the
defendant caused or was likely to have caused the victim to lose sales. If so, the
maximum measure of harm is the victim’s lost sales, which are valued at the
victim’s own prices. If not, the maximum measure of harm is the defendant’s
gain, which is valued at what the defendant took in, at his own prices. And if
the counterfeit price is hard to determine, then the harm should be computed
at the legitimate item’s price for ease of calculation.
Originally, the Guidelines directed courts to account for these harms by using
only the retail value of infringing (counterfeit) items. See U.S.S.G. § 2B5.3(b)
(1) & cmt. n.1 & backg’d (1998). But this approach was difficult to apply when
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infringing content, such as pirated software or music, had been distributed for
free over the Internet, thereby resulting in an infringement amount of $0. Nor
did the Guidelines explain how to calculate the retail value of the infringing
items when that value was difficult to determine. Notwithstanding the original
Guidelines’ silence as to a legitimate item’s retail value, courts recognized its
relevance in a variety of circumstances. The Second Circuit clarified that highquality fakes should be valued at the retail price and lower-quality fakes should
be valued at the counterfeit price. See United States v. Larracuente, 952 F.2d
672, 674-75 (2d Cir. 1992). Other courts recognized that a genuine item’s
price could help determine a counterfeit item’s retail value when it otherwise
was difficult to determine. See, e.g., United States v. Bao, 189 F.3d 860, 866-67
(9th Cir. 1999).
On May 1, 2000, the Guidelines caught up to the case law by concentrating
on the harm the defendant caused, whether he displaced the victim’s legitimate
sales, and how hard it is to calculate the counterfeit’s value. See U.S.S.G. App.
C (Amendments 590, 593). Application Note 2(A) to U.S.S.G. § 2B5.3 now
instructs the court to use the retail value of an authentic item if any one of the
following situations applies:
The infringing item “is, or appears to a reasonably informed
purchaser to be, identical or substantially equivalent to the infringed
item,” U.S.S.G. § 2B5.3 cmt. (n.2(A)(i)(I))
Differences in appearance and quality therefore matter if they could be
ascertained by “a reasonably informed purchaser.” Id. An infringing item that
could fool only an uninformed purchaser would be valued at the counterfeit
retail value. See United States v. Park, 373 Fed. Appx. 463, 464 (5th Cir 2010)
(district court did not clearly err in using retail value of infringed items to
calculate Guidelines range after receiving expert testimony that infringing
items “would have appeared to a reasonably informed purchaser to be identical
or substantially equivalent to the infringed items”); United States v. Alim, 256
Fed. Appx. 236, 240-41 (11th Cir. 2007) (same); United States v. Lozano,
490 F.3d 1317, 1322-23 (11th Cir. 2007) (same); United States v. Yi, 460
F.3d 623, 636-638 (5th Cir. 2006) (district court erred in using retail value
of infringed items in part because the infringed and infringing items did not
appear “virtually indistinguishable to a reasonably informed purchaser”).

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The infringing item is a digital or electronic reproduction,
U.S.S.G. § 2B5.3 cmt. n.2(A)(i)(II)
For digital or electronic reproductions, use the retail value of the authentic
item regardless of whether the reproductions appear authentic to a reasonably
informed purchaser. A counterfeit movie DVD with an obviously counterfeit
label is valued at the authentic item’s retail value, even though nobody would
be confused into mistaking the counterfeit for an authentic DVD. Because
a digital or electronic reproduction is a perfect substitute for the real thing,
whether its outer trappings look legitimate or not, the Commission reasoned
that in such cases, “the sale of an infringing item results in a displaced sale of
the legitimate, infringed item,” making it appropriate to use the value of the
infringed items for Guidelines calculations. U.S.S.G. App. C (Amendment
593). Moreover, the guideline simply does not distinguish between types of
digital reproduction, such as when the digital or electronic reproduction is
not a perfect substitute because its quality was degraded, as with a camcorded
movie or a musical song that has been reproduced at a lower sampling rate than
CD quality.
The counterfeit was sold at 75% or more of the authentic item’s retail
price, U.S.S.G. § 2B5.3 cmt. n.2(A)(ii)
The Commission reasoned that counterfeits sold at steep discounts should
not be valued the infringed items’ price because “the greatly discounted price
at which [the counterfeits are] sold suggests that many purchasers of infringing
items would not, or could not, have purchased the infringed item in the absence
of the availability of the infringing item.” U.S.S.G. App. C (Amendment 593).
Therefore, counterfeits sold at “not less than 75% of the retail price of the
infringed item” may be valued at the infringed items’ price. Id.; see also Yi, 460
F.3d at 637-38 (district court erred in using value of infringed items in part
because the infringing items sold for well below 75% of the infringed items’
retail price).
The counterfeit’s retail value “is difficult or impossible to determine
without unduly complicating or prolonging the sentencing
proceeding,” U.S.S.G. § 2B5.3 cmt. n.2(A)(iii)
Another enumerated situation permitting use of the infringed items’ retail
value is when the counterfeit’s retail is “difficult or impossible to determine
without unduly complicating or prolonging the sentencing proceeding.”
U.S.S.G. § 2B5.3 cmt. n.2(A)(iii); see also Yi, 460 F.3d at 638 (district court
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erred in using value of infringed items in part because “the retail values of many
of the infringing items were not only known to the government but presented at
trial”). Moreover, as is discussed in Section C.1.c.iv. of this Chapter, reasonable
estimates of the counterfeit retail prices are acceptable, but speculative guesses
or overly time-consuming calculations are not.
The offense involved illegal interception of satellite cable signals
in violation of 18 U.S.C. § 2511, where “the ‘retail value of the
infringed item’ is the price the user of the transmission would have
paid to lawfully receive that transmission, and the ‘infringed item’
is the satellite transmission rather than the intercepting device,”
U.S.S.G. § 2B5.3 cmt. n.2(A)(iv)
See United States v. Brereton, 196 Fed. Appx. 688, 691-93 (10th Cir. 2006)
(district court did not clearly err in relying on expert testimony that purchasers
of pirated DIRECTV access cards had “viewing habits like those in the top
ten percent of all DIRECTV customers” and then using the cost for that level
of access as the “retail value of the infringed item”). The Commission did not
specify why it cited only 18 U.S.C. § 2511 and not other statutes criminalizing
the illegal interception of satellite cable signals, such as 47 U.S.C. §§ 553(b)
(2) and 605, but neither did it exclude them from the rule’s application. See
U.S.S.G. App. C (Amendment 593).
The retail value of the authentic good is a better approximation of
the harm than the value of the counterfeit, U.S.S.G. § 2B5.3 cmt.
n.2(A)(v)
See Lozano, 490 F.3d at 1322-23 (district court did not clearly err in
using retail value of infringed item after finding this provided a more accurate
assessment of the pecuniary harm to the rights holder than the value of the
infringing items); Yi, 460 F.3d at 637 (error to use infringed items’ retail
value because it was “not at all clear on which record evidence, if any, the
district court based its assessment that the infringed item value provides a more
accurate assessment of the pecuniary harm to the trademark owners”).
The offense involves the display, performance, publication,
reproduction, or distribution of a work being prepared for commercial
distribution. In a case involving such an offense, the ‘retail value

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of the infringed [authentic] item’ is the value of that item upon its
initial commercial distribution, U.S.S.G. § 2B5.3 cmt. n.2(A)(vi)
This is part of the Sentencing Commission’s solution to the so-called
“pre-release problem”—that is, how to value an infringing copyrighted work
whose infringement occurred before the rights-holder put the authentic work
on the market itself. Confronted with widely diverging estimates of the harm
caused by pre-release piracy, the Commission determined that a pre-release
work’s retail value should equal its anticipated legitimate retail value, but that
a 2-point upward adjustment should be added for all pre-release offenses. See
U.S.S.G. § 2B5.3(b)(2). See also Section C.1.d. of this Chapter.
A case under 18 U.S.C. § 2318 or § 2320 that involves a counterfeit
label, patch, sticker, wrapper, badge, emblem, medallion, charm,
box, container, can, case, hangtag, documentation, or packaging of
any type or nature (I) that has not been affixed to, or does not enclose
or accompany a good or service; and (II) which, had it been so used,
would appear to a reasonably informed purchaser to be affixed to,
enclosing or accompanying an identifiable, genuine good or service. In
such a case, the “infringed item” is the identifiable, genuine good or
service, U.S.S.G. § 2B5.3 cmt. n.2(A)(vii)
The Sentencing Commission was responding to the directive in the Stop
Counterfeiting in Manufactured Goods Act that it address situations in
which “the item in which the defendant trafficked was infringing and also
was intended to facilitate infringement in another good or service, such as a
counterfeit label, documentation, or packaging ....” See U.S.S.G. Appendix C
(Amendment 682); cf. United States v. Sung, 87 F.3d 194, 196 (7th Cir. 1996)
(prior to Amendment 682, holding that defendant could only be held liable
for the counterfeit shampoo bottles he actually filled, unless the district court
found with “reasonable certainty” that he had intended to fill the rest).
A case under 17 U.S.C. §§ 1201 and 1204 in which the defendant
used a circumvention device. In such an offense, the ‘retail value of
the infringed item’ is the price the user would have paid to access
lawfully the copyrighted work, and the ‘infringed item’ is the accessed
work, U.S.S.G. § 2B5.3 cmt. n.2(A)(viii)
This was the Sentencing Commission’s response to the directive in the Stop
Counterfeiting in Manufactured Goods Act that it address situations in which
“the item in which the defendant trafficked was not an infringing item but
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rather was intended to facilitate infringement, such as an anti-circumvention
device (sic) ....” See U.S.S.G. App. C (Amendment 704). This applies only if
the “defendant used a circumvention device and thus obtained unauthorized
access to a copyrighted work.” Id. If the defendant “violated 17 U.S.C. §§
1201 and 1204 by conduct that did not include use of a circumvention device
... the infringement amount would be determined by reference to the value of
the infringing item, which in these cases would be the circumvention device.”
Id.
If any one of the above situations applies, the retail value is that of the
infringed (legitimate) item.
If none of these situations apply, the retail value is that of the infringing
(counterfeit) item. See U.S.S.G. § 2B5.3 cmt. n.2(B) & backg’d; id. App. C
(Amendment 593). This includes cases involving the unlawful recording of a
musical performance in violation of 18 U.S.C. § 2319A. U.S.S.G. § 2B5.3
cmt. n.2(B).
iv. Determining Amounts and Values—
Reasonable Estimates Allowed
Any relevant source of information is appropriate in determining the
infringing or infringed item’s retail value. Actual prices are preferable, such
as prices determined from the defendant’s price list, prices charged during
undercover buys, or actual retail prices for specific items in the legitimate
manufacturer’s catalogue. Approximations may be necessary, however, and
they may include estimations of the average counterfeit prices in the market or
region as determined by experts, or the average retail price for a product line in
the manufacturer’s catalogue.
The same rule applies when determining the number of infringing items:
actual counts are preferable, but approximations are appropriate. U.S.S.G.
§ 2B5.3 explicitly states that reasonable estimates are acceptable. On October
24, 2005, on a temporary, emergency basis, and on November 1, 2006,
permanently, Application Note 2(E) was added to U.S.S.G. § 2B5.3:
(E) Indeterminate Number of Infringing Items.—In a case in
which the court cannot determine the number of infringing
items, the court need only make a reasonable estimate of
the infringement amount using any relevant information,
including financial records.
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See U.S.S.G. App. C (Amendment 675, 687). The reference to financial
records is likely an incorporation of the Tenth Circuit’s holding in Foote. See
United States v. Foote, 413 F.3d 1240, 1251 (10th Cir. 2005) (allowing analysis
of defendant’s bank records to aid in determining infringement amount); see
also United States v. Sweeney, 611 F.3d 459, 474 (8th Cir. 2010) (holding that
district did not clearly err under § 2B5.3 in making a “reasonable estimate” of
the infringement amount by starting with the gross revenues of the defendants’
company, which sold cable television descramblers); United States v. Beydoun,
469 F.3d 102, 105-06 (5th Cir. 2006) (noting under § 2B5.3 only a reasonable
estimate of copyright infringement was required).
Although statistical precision is preferable, it is not necessary. For example,
in Sweeney, the defendants argued that the government had not proved that any
of the 178,260 descramblers it sold over a three-year period were “actually used
to intercept cable signals illegally,” and the “correct infringement amount was
therefore $0.” Sweeney, 611 F.3d at 474. Rejecting this as “sophistry,” the Court
found that, under the methodology set out in U.S.S.G. § 2B5.3, cmt. n.2(E),
“[i]t [was] perfectly reasonable to infer that the majority of these descramblers
were in fact used to steal cable programming,” even though “the exact number
and value of stolen cable transmissions [were] unknown ....” Id.
Although U.S.S.G. § 2B5.3 speaks only of estimating the number of
infringing items, there is no reason to believe that it abrogates earlier law allowing
the estimation of retail values. E.g., United States v. Brereton, 196 Fed. Appx.
688, 692-93 (10th Cir. 2006) (citing Foote, finding that district court did not
clearly err in making reasonable estimate of retail value of pirated DIRECTV
access cards); Foote, 413 F.3d at 1251 (“[d]istrict courts have considerable
leeway in assessing the retail value of the infringing items, and need only make
a reasonable estimate of the loss, given the available information”) (internal
quotation marks and citation omitted); United States v. Slater, 348 F.3d 666,
670 (7th Cir. 2003) (confirming that district courts have “considerable leeway
in assessing the retail value of the infringing items” and that courts “need only
make a reasonable estimate of the loss, given the available information,” citing
the former U.S.S.G. § 2F1.1, now replaced by § 2B1.1).
v. Cross-Reference to Loss Table in U.S.S.G. § 2B1.1
Once calculated, the infringement amount sets the scope of the enhancement
in U.S.S.G. § 2B5.3(b)(1):

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•

An infringement amount below or up to $2,000 results in
no increase;

•

An infringement amount above $2,000 and up to $5,000
results in a 1-level increase; and

•

An infringement amount above $5,000 increases the offense
level according to the loss table in U.S.S.G. § 2B1.1(b)(1)
(Theft, Embezzlement, Receipt of Stolen Property, Property
Destruction, and Offenses Involving Fraud or Deceit).

When consulting U.S.S.G. § 2B1.1, look only to the loss table in subsection
(b)(1); other portions of that guideline—including the base offense level, other
offense enhancements, and the commentary—are inapplicable. See U.S.S.G.
§ 1B1.5(b)(2). Moreover, U.S.S.G. § 2B5.3(b)(1)’s citation to the loss table in
U.S.S.G. § 2B1.1 does not mean that the infringement amount should equal
the victim’s loss. Rather, the infringement amount approximates the victim’s
loss, but need not equal it. See United States v. Bao, 189 F.3d 860, 867 (9th Cir.
1999) (finding that district court properly calculated the amount for the loss
table in U.S.S.G. § 2F1.1 – which has since been replaced by U.S.S.G. § 2B1.1
– by using the retail value of the counterfeit items and not the loss derived from
their production); United States v. Cho, 136 F.3d 982 (5th Cir. 1998) (same);
U.S.S.G. Appendix C (Amendments 590, 593) (discussing infringement
amount as similar to loss and an approximation of harm); cf. United States v.
Koczuk, 252 F.3d 91, 97 (2d Cir. 2001) (in wildlife case, citing Cho, finding
that calculation using loss table in U.S.S.G. § 2F1.1 should be based on retail
price of endangered species involved, not economic loss caused by offense).
On this technical point, United States v. Sung, 51 F.3d 92, 95 (7th Cir. 1995)
is incorrect when it confuses the infringement amount with the loss incurred.
Although the infringement amount is often characterized as describing the
“loss” to the victim, it is not necessary for the government to show that the
copyright owner suffered any actual pecuniary loss. See Beydoun, 469 F.3d at
105 (defendant, who produced booklets of counterfeit cigarette rolling papers
with the intent to sell them, was accountable even if he “never sold a single
infringing booklet”); United States v. Powell, 139 Fed. Appx. 545 (4th Cir.
2005) (applying 2003 Guidelines, finding enhancement under § 2B1.1 table
based on infringement amount of more than $250,000 was proper even though
the victim suffered no pecuniary loss; sentence vacated and remanded on other
grounds).

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d. Pre-release Piracy Increases the Offense Level by 2—U.S.S.G.
§ 2B5.3(b)(2)
Distribution of a copyrighted item before it is legally available to the
consumer is more serious than the distribution of already available items.
U.S.S.G. App. C (Amendment 675, 687). Consequently, effective October
24, 2005, on a temporary, emergency basis, and permanently on November 1,
2006, the Sentencing Commission added a 2-level enhancement for offenses
that involve the display, performance, publication, reproduction, or distribution
of a work being prepared for commercial distribution. See U.S.S.G. § 2B5.3(b)
(2). A “[w]ork being prepared for commercial distribution” has the meaning
given in 17 U.S.C.§ 506(a)(3). U.S.S.G. § 2B5.3 cmt. n.1. See also Chapter
II of this Manual.
The 2-level increase for pre-release piracy applies not only to the online
pre-release offense set forth in 17 U.S.C. § 506(a)(1)(C) (which by definition
involves pre-release piracy over publicly-accessible computer networks), but
also to any copyright crimes under § 506(a)(1)(A) or (B) that involve prerelease piracy done through any other medium, such as a § 506(a)(1)(A)
conviction for selling pirated pre-release movie DVDs.
e. Manufacturing, Importing, or Uploading Infringing Items Increases
the Offense Level by 2—U.S.S.G. § 2B5.3(b)(3) [before October 24,
2005: § 2B5.3(b)(2)]
The offense level is increased by 2 levels if the offense involves the
“manufacture, importation, or uploading of infringing items.” U.S.S.G.
§ 2B5.3(b)(3). If, after applying § 2B5.3(a), (b)(1), (b)(2), and the 2-level
increase in (b)(3), the offense level is less than 12, then it must be increased to
12. U.S.S.G. § 2B5.3(b)(3).
This upward adjustment reflects the need to punish those who introduce
infringing goods into the stream of commerce. U.S.S.G. App. C (Amendments
590, 593).
Uploading is particularly troublesome because it not only introduces
infringing items into the stream of commerce, but also enables further
infringement of the works. U.S.S.G. App. C (Amendments 590, 593).
“‘Uploading’ means making an infringing item available on the Internet or
a similar electronic bulletin board with the intent to enable other persons to
(A) download or otherwise copy the infringing item; or (B) have access to
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the infringing item, including by storing the infringing item as an openly
shared file. ‘Uploading’ does not include merely downloading or installing an
infringing item on a hard drive on a defendant’s personal computer unless the
infringing item is an openly shared file.” U.S.S.G. § 2B5.3 cmt. n.1 (Nov.
1, 2006). (Before the October 24, 2005 temporary, emergency amendments,
made permanent on November 1, 2006 with minor changes, “uploading” was
defined in § 2B5.3’s first and third application notes. The 2005 and 2006
amendments consolidated the definition into the first application note and
clarified the circumstances in which loading a file onto a computer hard drive
constitutes uploading. See U.S.S.G. App. C (Amendments 675, 687).)
Manufacturing and importing infringing items are also singled out for
a 2-level increase because those actions introduce infringing items into the
stream of commerce. U.S.S.G. § 2B5.3 and App. C (Amendments 590, 593).
Although the Guidelines do not define “manufacturing,” the important
distinction is between manufacturing (which gets the 2-level increase) and mere
distribution and trafficking (which do not get an increase unless the conduct
also involved importation or uploading). See United States v. Gray, 446 Fed.
Appx. 569, 570 (4th Cir. 2011) (per curiam) (district court did not clearly err in
applying manufacturing enhancement to defendant who “not only bought and
resold infringing materials, but ... personally created infringing materials using
equipment found in his home”); Brereton, 196 Fed. Appx. at 693 (finding that
defendant’s reprogramming of pirated DIRECTV access cards before selling
them justified manufacturing enhancement).
Manufacturing should encompass not only the production of counterfeit
trademarked hard goods, but also the performance of counterfeit servicemarked services and the production and reproduction of pirated copyrighted
works under 17 U.S.C. § 506; counterfeit labels under 18 U.S.C. § 2318;
bootleg music recordings under 17 U.S.C. § 2319A; camcorded movies under
18 U.S.C. § 2319B; and illegal circumvention devices under 17 U.S.C. § 1204.
If a defendant conspired with or aided and abetted another person who
manufactured, uploaded, or imported infringing items, the defendant can
qualify for this 2-level increase even if he did none of these things himself.
The increase is triggered by whether the offense involved manufacturing,
importation, or uploading, not whether the defendant performed these
tasks. See U.S.S.G. § 2B5.3(b)(3) (“If the offense involved the manufacture,

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325

importation, or uploading ...”) (emphasis added); U.S.S.G. § Ch. 2
(Introductory Commentary) (“Chapter Two pertains to offense conduct.”).
f. Offense Not Committed for Commercial Advantage or Private
Financial Gain Reduces the Offense Level by 2—U.S.S.G.
§ 2B5.3(b)(4)
The fourth offense characteristic, located in guideline § 2B5.3(b)(4),
decreases the offense level by 2 levels if the offense was not committed for
commercial advantage or private financial gain, but the resulting offense level
cannot be less than 8.
The defendant bears the burden of proving that he is entitled to this offense
characteristic, because it is structured as a decrease rather than an increase.
See generally United States v. Perez, 418 Fed. Appx. 829, 836 (11th Cir. 2011)
United States v. Ameline, 409 F.3d 1073, 1086 (9th Cir. 2005) (en banc);
United States v. Dinges, 917 F.2d 1133, 1135 (8th Cir. 1990); United States v.
Kirk, 894 F.2d 1162, 1164 (10th Cir. 1990); United States v. Urrego-Linares,
879 F.2d 1234, 1238-39 (4th Cir. 1989); United States v. Herbst, No. 10-CR1008-LRR, 2011 WL 794507, at *12 (D. Iowa March 1, 2011).
For a detailed discussion of what qualifies as conduct done for the purposes
of commercial advantage or private financial gain, see Section B.4. of Chapter
II (Copyright) of this Manual. The interpretation of commercial advantage and
private financial gain in copyright cases applies equally to U.S.S.G. § 2B5.3 for
any type of intellectual property crime because the statutory and Guidelines
definitions are nearly identical. Compare U.S.S.G. § 2B5.3 cmt. n.1 (defining
terms) with 17 U.S.C. § 101 (same).
g. Offense Involving a Counterfeit Drug Increases the Offense Level
by 2—U.S.S.G. § 2B5.3(b)(5) (effective November 1, 2013)
In an amendment scheduled to take effect November 1, 2013, if the offense
involved a counterfeit drug, the offense level is increased by 2. See U.S.S.G.
§ 2B5.3(b)(5). This will replace the existing § 2B5.3(b)(5), which will be
renumbered § 2B5.3(b)(6).
In March 2011, the Office of the Intellectual Property Enforcement
Coordinator transmitted a range of legislative proposals to Congress including
a number or recommendations to enhance certain Guidelines, including those
for counterfeit drugs. See Administration’s White Paper on Intellectual Property
Enforcement Legislative Recommendations (March 2011) (“White Paper”),
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available at http://www.whitehouse.gov/sites/default/files/ip_white_paper.pdf.
In response, the Food and Drug Administration Safety and Innovation Act,
Pub. L. No. 112-144, § 717(b), 126 Stat. 993, 1076 (July 9, 2012), directed
the United States Sentencing Commission to review existing penalties for
violations of 18 U.S.C. § 2320, and included a general recommendation that
the applicable Sentencing Guidelines be increased, particularly for counterfeit
drug offenses.
On April 10, 2013, the Commission voted to amend § 2B5.3 to provide
the new two-level enhancement when the offense involves a counterfeit drug.
This amendment will go into effect on November 1, 2013, unless Congress
and the President act to disapprove it. Because the guidelines are advisory only,
though, this amendment can be cited before then to courts as a reason for
varying from the current guidelines. See, e.g., United States v. Mateos, 623 F.3d
1350 (11th Cir. 2010) (Justice O’Connor, sitting by designation, holding that
forthcoming changes to the sentencing guidelines inform both the sentencing
and reviewing courts on the appropriate sentencing in a given case).
h. Offense Involving Risk of Death or Serious Bodily Injury or Possession
of a Dangerous Weapon Increases the Offense Level by 2—U.S.S.G.
§ 2B5.3(b)(5)
If the offense involved conscious or reckless risk of death or serious bodily
injury or possession of a dangerous weapon, the offense level is increased by 2.
U.S.S.G. § 2B5.3(b)(5). If the resulting offense level is less than 14, then it must
be increased to level 14. See, e.g., United States v. Maloney, 85 Fed. Appx. 252
(2d Cir. 2004) (applying 2-level enhancement for possession of a dangerous
weapon in connection with conviction under 18 U.S.C. § 2318(a),(c)(3) and
§ 2, even though defendant was acquitted at trial of a felon-in-possession of
a firearm charge). This subsection was last amended in response to the PROIP Act of 2008 to include offenses involving risk of death. U.S.S.G. App. C
(Amendment 735); PRO-IP Act of 2008, Pub. L. No. 110-403, § 205, 122
Stat. 4256, 4262 (2008). This brought § 2B5.3 back into parallel with § 2B1.1,
reflecting the Commission’s prior judgment that “aggravating conduct in
connection with infringement cases should be treated under the guidelines in
the same way it is treated in connection with fraud cases.” U.S.S.G. App. C
(Amendment 590).

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This enhancement was partially motivated by the health and safety risks
from counterfeit consumer products such as counterfeit batteries, airplane
parts, and pharmaceuticals. See U.S.S.G. App. C (Amendments 590, 593).
On April 10, 2013, the Commission voted to amend § 2B5.3 by adding a
new § 2B5.3(b)(5) for offenses involving counterfeit drugs and renumbering
the current § 2B5.3(b)(5) as § 2B5.3(b)(6). This amendment will go into effect
on November 1, 2013, unless Congress and the President act to disapprove it.
i. Offense Involving Counterfeit Military Goods and Services Under
Certain Conditions Increases the Offense Level by 2 and Sets a
Minimum Offense Level of 14—U.S.S.G. § 2B5.3(b)(7) (effective
November 1, 2013)
In an amendment scheduled to take effect November 1, 2013, if the
offense involves counterfeit military goods and services the use, malfunction,
or failure of which is likely to cause the disclosure of classified information,
impairment of combat operations, or other significant harm to a combat
operation, a member of the Armed Forces, or to national security, the offense
level is increased by 2, and if the resulting offense level is less than level 14,
then it is increased to level 14. See U.S.S.G. § 2B5.3(b)(7) (proposed). The
proposed amendment also adds Commentary to § 2B5.3 to clarify that “other
significant harm to a member of the Armed Forces” means significant harm
other than serious bodily injury or death. If a military good or service is likely
to cause serious bodily injury or death, one would still apply § 2B5.3(b)(5)(A)
(conscious or reckless risk of serious bodily injury or death) [after November
1, 2013, § 2B5.3(b)(6)(A)].
Responding in part to the Administration’s White Paper, the National
Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, § 818(h),
125 Stat. 1298, 1497 (December 31, 2011), amended 18 U.S.C. § 2320 to add
a new subsection (a)(3) that prohibits trafficking in counterfeit military goods
and services, the use, malfunction, or failure of which is likely to cause serious
bodily injury or death, the disclosure of classified information, impairment of
combat operations, or other significant harm to a combat operation, a member
of the Armed Forces, or national security.
On April 10, 2013, the Commission voted to amend § 2B5.3 to provide
the new two-level enhancement and the new minimum offense level of 14 for
offenses involving counterfeit military goods and services with the aggravating
circumstances set out above and make the corresponding amendment to the
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Commentary. These amendments will go into effect on November 1, 2013,
unless Congress and the President act to disapprove them. Because the
guidelines are advisory only, though, these amendments can be cited before
then to courts as a reason for varying from the current guidelines. See, e.g.,
Mateos, 623 F.3d 1350 (Justice O’Connor, sitting by designation, holding that
forthcoming changes to the sentencing guidelines inform both the sentencing
and reviewing courts on the appropriate sentencing in a given case).
j. Decryption or Circumvention of Access Controls May Increase the
Offense Level—U.S.S.G. § 3B1.3
The 2-level enhancement for use of a special skill under U.S.S.G. § 3B1.3
“may apply” if the defendant decrypted or circumvented access controls.
U.S.S.G. § 2B5.3 cmt. n.3. On November 1, 2007, the Commission changed
this enhancement from mandatory to discretionary, after determining that
“not every case involving de-encryption or circumvention requires the level
of skill contemplated by the special skill adjustment.” Id. (Amendment 704).
Because the note quoted above refers only to the circumvention of access
controls, it is unclear whether the special skill enhancement also applies to
decrypting or circumventing copy controls. There is no policy-related reason
to treat access and copy controls differently at sentencing. In fact, U.S.S.G.
§ 3B1.3 applies to any defendant who commits an intellectual property crime
while using a special skill. See Section C.2.i. of this Chapter for a more detailed
description of what constitutes a special skill.
This enhancement may not be assessed for use of a special skill if the
adjustment under U.S.S.G. § 3B1.1 (Aggravating Role) is also assessed. See
U.S.S.G. § 3B1.3.
k. Departure Considerations
The fourth application note for § 2B5.3 states that a departure may
be warranted if the offense level determined under § 2B5.3 “substantially
understates or overstates the seriousness of the offense,” such as: (i) when the
offense substantially harmed the victim’s reputation in a way that is otherwise
unaccounted for, including in calculating the infringement amount; (ii)
when the offense was in connection with, or in furtherance of, a national or
international organized criminal enterprise; and/or (iii) when the method used
to calculate the infringement amount overstates the actual pecuniary harm to
the victim. These three examples, however, are not exclusive. U.S.S.G. § 2B5.3
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cmt. n.4 (noting that this is a “non-exhaustive list of factors” in considering
departures); id. App. C (Amendments 590, 593, 704). On November 1, 2007,
the Commission modified Application Note 4 to address downward as well as
upward departures. Id. (Amendment 704); see United States v. Neuman, 406
Fed. Appx. 847, 852 (5th Cir. 2010) (finding that district court did not abuse
its discretion in basing sentence on infringement amount instead of restitution
amount where it was clear from the record that the court had duly considered
that disparity, and had rejected a downward departure, under U.S.S.G. § 2B5.3
cmt. n.4(C).
On April 10, 2013, the Commission voted to amend the Commentary to
§ 2B5.3 to add a new departure consideration for any offense sentenced under
§ 2B5.3 providing that a departure may be warranted if the offense resulted
in death or serious bodily injury. See U.S.S.G. 2B5.3 cmt. n.4(D) (proposed).
This amendment will go into effect on November 1, 2013, unless Congress
and the President act to disapprove it. Because the guidelines are advisory only,
though, this amendment can be cited before then to courts as a reason for
varying from the current guidelines. See, e.g., Mateos, 623 F.3d 1350 (Justice
O’Connor, sitting by designation, holding that forthcoming changes to the
sentencing guidelines inform both the sentencing and reviewing courts on the
appropriate sentencing in a given case).
l.

Vulnerable Victims—U.S.S.G. § 3A1.1(b)

Intellectual property crime defendants are likely to qualify for an upward
adjustment under U.S.S.G. § 3A1.1(b) if they knew or should have known that
they were selling counterfeit products to vulnerable victims. A prime example
of this would be selling counterfeit pharmaceuticals that are distributed or
redistributed to sick patients. See United States v. Milstein, 401 F.3d 53, 74 (2d
Cir. 2005) (affirming vulnerable victim adjustment for distributing counterfeit
and misbranded drugs “to doctors, pharmacists, and pharmaceutical
wholesalers, knowing that those customers would distribute the drugs to
women with fertility problems and to Parkinson’s disease patients”).
m. No Downward Departure for the Victim’s Participation
in Prosecution
The court may not depart downward on the ground that the victim
participated in the prosecution. In United States v. Yang, 281 F.3d 534 (6th
Cir. 2002), cert. denied, 537 U.S. 1170 (2003), on appeal after new sentencing
hearing, 144 Fed. Appx. 521 (6th Cir. 2005), a prosecution for theft of trade
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secrets, mail fraud, wire fraud, and money laundering, the trial court departed
downward 14 levels on the ground that the victim participated too much
in the prosecution, specifically in calculating the loss it suffered. The Sixth
Circuit reversed, concluding that “the victim’s participation in the prosecution
is wholly irrelevant to either the defendant’s guilt or the nature or extent of his
sentence,” and is therefore not a permissible basis for a downward departure.
Yang, 281 F.3d at 545-46.
2. Offenses Involving the Economic Espionage Act (EEA)
a. Applicable Guideline is § 2B1.1, Except for Attempts
and Conspiracies
Unlike most other intellectual property offenses, which are sentenced
under U.S.S.G. § 2B5.3, completed EEA offenses (both § 1831 and § 1832)
are sentenced under U.S.S.G. § 2B1.1. See U.S.S.G. App. A. The choice of
U.S.S.G. § 2B1.1 instead of U.S.S.G. § 2B5.3 likely reflects the idea that EEA
offenses are primarily about stolen property rather than infringement. The
superficial difference between stealing and infringement is that one physically
dispossesses the victim of his property and the latter does not. However, the
EEA punishes those who steal trade secrets without dispossessing the victim
of his trade secret, and even after a trade secret is physically stolen, the victim
may still use the information itself. The overlap between misappropriation and
infringement therefore makes U.S.S.G. § 2B1.1 an interesting fit for the EEA.
An EEA attempt or conspiracy is sentenced under U.S.S.G. § 2X1.1
(Conspiracies, Attempts, and Solicitations), which uses the offense level
calculated under U.S.S.G. § 2B1.1 and decreases the base offense level 3 levels
“unless the defendant completed all the acts the defendant believed necessary
for successful completion of the substantive offense or the circumstances
demonstrate that the defendant was about to complete all such acts but for
apprehension or interruption by some similar event beyond the defendant’s
control.” U.S.S.G. § 2X1.1(b)(1), (2). The 3-point reduction will rarely
apply in EEA attempt cases resulting from undercover stings because in those
operations the defendant has generally completed all necessary acts short of the
actual receipt of what the defendant believed was a trade secret.
b. Base Offense Level—U.S.S.G. § 2B1.1(a)
(2).

The base offense level for a completed EEA crime is 6. U.S.S.G. § 2B1.1(a)

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c. Loss—U.S.S.G. § 2B1.1(b)(1)
The defendant’s sentence is driven largely by the value of the misappropriated
property. Under U.S.S.G. § 2B1.1(b)(1), the offense level increases according
to the amount of the loss.
i. Use Greater of Actual or Intended Loss
This loss figure is “the greater of actual loss or intended loss.” U.S.S.G.
§ 2B1.1 cmt. n.3(A). “Actual loss” is “the reasonably foreseeable pecuniary
harm that resulted from the offense,” whereas “intended loss (I) means the
pecuniary harm that was intended to result from the offense; and (II) includes
intended pecuniary harm that would have been impossible or unlikely to occur
(e.g., as in a government sting operation, or an insurance fraud in which the
claim exceeded the insured value).” Id. cmt. n.3(A)(i-ii).
ii. Reasonable Estimates Acceptable
Whatever method is chosen to calculate loss, the government’s calculation
need not be absolutely certain or precise. “The court need only make a
reasonable estimate of the loss.” U.S.S.G. § 2B1.1 cmt. n.3(C).
iii. Methods of Calculating Loss
Guideline § 2B1.1’s application notes outline a number of general methods
for calculating the loss, many of which are included as methods to estimate the
loss:
• “[T]he reasonably foreseeable pecuniary harm that resulted from the
offense,” U.S.S.G. § 2B1.1 cmt. n.3(A)(i)
• “The fair market value of the property unlawfully taken, copied, or
destroyed; or, if the fair market value is impracticable to determine or
inadequately measures the harm, the cost to the victim of replacing
that property,” Id. n.3(C)(i)
• “In the case of proprietary information (e.g., trade secrets), the cost
of developing that information or the reduction in value of that
information that resulted from the offense,” Id. n.3(C)(ii)
• “The cost of repairs to damaged property,” Id. n.3(C)(iii)
• “The approximate number of victims multiplied by the average loss to
each victim,” Id. n.3(C)(iv)
• “The reduction that resulted from the offense in the value of equity
securities or other corporate assets,” Id. n.3(C)(v)
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•
•

“More general factors, such as the scope and duration of the offense
and revenues generated by similar operations,” Id. n.3(C)(vi)
“[T]he gain that resulted from the offense as an alternative measure of
loss[,] only if there is a loss but it reasonably cannot be determined,”
Id. n.3(B)

On November 1, 2009, the Commission amended Application Note 3(C),
adding the word “copied” to subdivision (i), and inserting a new subdivision
(ii) dealing specifically with proprietary information. U.S.S.G. App. C
(Amendment 726). The first change addressed situations in which the owner of
proprietary information actually retains possession, but because the information
is unlawfully copied and/or disseminated, the information’s value declines. In
such a case, the court may use the fair market value of the copied information
in calculating loss. The second change was simply an effort to provide some
direct explanation of how to estimate loss in a trade secrets case. Id.
Nevertheless, in a trade secrets case, calculating the loss can be complicated.
First, consider the situations under which the defendant can be convicted: (a)
merely conspiring to misappropriate a trade secret that the victim has not fully
exploited to create a product; (b) receiving a trade secret, but not using the
trade secret; (c) stealing a trade secret at no cost; (d) stealing a trade secret
for an agreed-upon bribe; (e) receiving a trade secret and using it to create a
product that has not been completed; (f ) receiving a trade secret, using it to
create a product, introducing the product, but not yet selling it; (g) receiving
a trade secret, using it to create a product, and selling the product at a loss; (h)
receiving the trade secret, using it, and selling the product at a profit, while the
victim continues to profit from its own sales; and (i) receiving the trade secret,
using it, and selling a product that displaces the victim’s sales. These situations
do not exhaust the possibilities. They illustrate, however, several complicating
factors:
• whether the defendant paid anything for the secret;
• whether the defendant was paid anything for the secret;
• whether the defendant used the secret;
• whether the defendant used the secret and made money from its use;
and
• whether the victim’s sales decreased, increased, or increased at a lower
rate than they would have had the misappropriation not occurred.

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The final complicating factor is that trade secrets are, by definition, not
traded in an open market that allows the easy calculation of a trade secret’s
price or value.
The variety of misappropriation scenarios, the variety of evidence available,
and the broad principles of valuing trade secrets in criminal and civil law lead
to one clear recommendation: prosecutors, agents, and courts should consider
the variety of methods by which a trade secret can be valued, develop whatever
evidence is reasonably available, and then be pragmatic about choosing which
method to use, as long as it is equitable, appropriately punitive, and supported
by the evidence. The cases bear this out.
Criminal Cases
Few reported federal criminal decisions describe how to value trade secrets,
but those that do tend to focus on the trade secret’s research and development
costs.
In United States v. Four Pillars Enter. Co., 253 Fed. Appx. 502, 512 (6th
Cir. 2007), the defendant company stole more than sixty adhesive formulas
from victim Avery Dennison. At sentencing, an Avery employee testified that
the research and development costs for the formula totaled $869,300. The
Sixth Circuit found no error in the district court’s decision to accept this cost
model.
In United States v. Ameri, 412 F.3d 893 (8th Cir. 2005), an employee stole
his employer’s proprietary software, which the evidence showed was at the heart
of a $10 million contract, had no verifiable fair market value because it was not
available separately, alternatively had a fair market value of $1 million per copy,
and was developed for about $700,000. Id. at 900. Faced with these figures,
the Eighth Circuit affirmed the trial court’s loss estimate of $1.4 million, which
appears to be the $700,000 in development costs times 2, the number of copies
the defendant made. Id. at 900-01.
Finally, United States v. Kwan, No. 02 CR. 241(DAB), 2003 WL 22973515
(S.D.N.Y. Dec. 17, 2003), considered whether “proprietary” “hotel contact
lists, hotel rate sheets, travel consortium contact lists, travel consortium rate
sheets, and cruise operator rate sheets”—all useful in the travel industry—met
the jurisdictional threshold for interstate transportation of stolen property
under 18 U.S.C. § 2314 by being worth more than $5,000. Id. at *1. The
court found most persuasive an argument for a value over $5,000 based on
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the documents’ cost of production, which it estimated by noting the salary of
people who created the documents and the amount of time they would have
spent gathering the information and creating the documents. Id. at *9 & n.12.
In all these cases, the loss or market value was defined largely by development
costs.
Some civil trade secret cases have measured the replacement cost using
the victim’s research and development costs. See Salsbury Labs., Inc. v. Merieux
Labs., Inc., 908 F.2d 706, 714-15 (11th Cir. 1990) (holding that research
and development costs for misappropriated vaccine were a proper factor to
determine damages); cf. University Computing Co. v. Lykes-Youngstown Corp.,
504 F.2d 518, 538 (5th Cir. 1974) (holding that development costs should be
taken into consideration with a number of factors, including “the commercial
context in which the misappropriation occurred”). But see Softel, Inc. v. Dragon
Med. & Scientific Commc’ns, Inc., 118 F.3d 955, 969 (2d Cir. 1997) (holding
that it is usually appropriate to measure damages based on development costs
and importance of secret to plaintiff only after a defendant completely destroys
the value of the trade secret).
An interesting exception to using development costs to value trade secrets is
United States v. Pemberton, 904 F.2d 515 (9th Cir. 1990), in which a legitimate
buyer’s price was selected. After the defendant was convicted for receiving
stolen property, namely technical landscape and irrigation design drawings
for a 450-acre commercial development, the trial court had to select among
valuation methods, including valuing the drawings at what the drawings were
purportedly worth to defendant—zero; the $1,200 cost of the materials on
which they were drawn; the $65,000 cost of replacing the drawings in full; and
the $118,400 contract price for the drawings (80 percent of the full contract
price, given that the drawings were 80 percent complete when stolen). Id. at
516 & n.1, 517. Without a price from an open market, since the drawings were
unique, the appellate court affirmed the trial court’s choice of the $118,400
contract price. Id. at 517.
Why use the buyer’s price in Pemberton rather than the development costs,
as had been done in the Wilson, Ameri, and Kwan cases? There appear to be three
differences. First, in Pemberton the buyer’s price came from a legitimate market
transaction rather than a black-market transaction that would have undervalued
the property. Second, in Pemberton, the buyer’s price was apparently higher
than the development costs. Third, and this is related to the second point, in
Pemberton the drawings that were stolen likely could have been used for one
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project only, the real estate development by the legitimate buyer, whereas the
trade secrets in Wilson, Ameri, and Kwan included general information that
could have been used over and over again by illegitimate buyers. Research and
development costs for a one-off project are likely to be less than the legitimate
buyer’s price (since this is the only opportunity the trade-secret holder can
recover his overhead), whereas research and development costs for a replicable
product or service will likely exceed a legitimate buyer’s price (since the tradesecret holder can recover his overhead through repeated sales).
Another possible measure of loss in trade secrets cases is actual pecuniary
loss. In United States v. Wilkinson, 590 F.3d 259 (4th Cir. 2010), the defendant
pled guilty to several charges, including conspiracy to steal trade secrets, for
his scheme to obtain fuel contracts from the Defense Energy Support Center
(DESC) by paying a competitor’s employee for confidential bid information
which would enable the defendant’s company to underbid the competitor.
The Fourth Circuit remanded for resentencing, finding that the district court
had failed to consider properly the government’s evidence of actual loss, even
though the DESC never actually ended up paying out on the tainted contracts.
The government’s expert witness calculated the loss based on the DESC’s
administrative costs in preparing new bid packages, making spot purchases of
fuel while it waited to award replacement contracts, and the ultimately higher
costs DESC faced for the untainted replacement contracts. Id. at 265.
Civil Cases
Prosecutors should also be aware of how civil cases measure losses from
trade secret misappropriation. See supra; cf. United States v. Olis, 429 F.3d 540,
546 (5th Cir. 2005) (holding that “[t]he loss guideline [in U.S.S.G. § 2B1.1]
is skeletal because it covers dozens of federal property crimes,” and therefore
“[t]he civil damage measure [for securities fraud] should be the backdrop for
criminal responsibility both because it furnishes the standard of compensable
injury for securities fraud victims and because it is attuned to stock market
complexities”).
Unfortunately, beyond reinforcing the criminal cases’ use of research and
development costs, civil measures of damages provide little hard and fast
guidance. The Uniform Trade Secrets Act echoes the Sentencing Guidelines’
generalities:
Damages can include both the actual loss caused by
misappropriation and the unjust enrichment caused by
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misappropriation that is not taken into account in computing
actual loss.
Uniform Trade Secrets Act § 3(a) (1985); see also Mike’s Train House, Inc. v.
Lionel, L.L.C., 472 F.3d 398, 413-15 (6th Cir. 2006) (a plaintiff which is able to
prove that it was damaged but that the defendant’s unjust enrichment exceeded
the proven damages to plaintiff, is able to recover his own damages plus, to
the extent not duplicative in amount, the defendant’s unjust enrichment).
In determining damages under the Uniform Trade Secrets Act, courts base
the trade secret’s market value on the victim’s loss or the defendant’s gain,
depending on which measure appears to be more reliable or greater given the
particular circumstances of the theft. See Vermont Microsystems, Inc. v. Autodesk
Inc., 138 F.3d 449, 452 (2d Cir. 1998); University Computing Co. v. LykesYoungstown Corp., 504 F.2d 518 (5th Cir. 1974); Healthcare Advocates v.
Affordable Healthcare Options, No. 09-5839, 2010 WL 4665956, at *2 (E.D.
Pa. Nov. 18, 2010); Milgrim on Trade Secrets § 15.02(3)(c) (2012). With such
broad principles, “the general law as to the proper measure of damages in a
trade secrets case is far from uniform.” Telex Corp. v. International Bus. Machs.
Corp., 510 F.2d 894, 930 (10th Cir. 1975) (concerning misappropriation of
trade secrets and confidential information relating to electronic data processing
systems).
As might be expected, civil cases use a variety of methods to value trade
secrets:
• the value placed on the trade secrets by the parties;
• the victim’s lost profits;
• the defendant’s realized profits;
• the defendant’s saved costs from misappropriation;
• the research and development costs for the trade secret; and
• a reasonable royalty to the victim, when there was otherwise no gain
or loss.
1 Richard Raysman & Peter Brown, Computer Law: Drafting and Negotiating
Forms § 6.03A (2012). When there is evidence for more than one measure,
“the court will frequently award that amount which is most beneficial to the
injured party.” Id.
Civil cases often note that if the victim’s loss were the only appropriate
measure of damages, someone caught red-handed stealing trade secrets could
not be punished if he had not yet used the information to the owner’s detriment.
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As a result, in such circumstances most Uniform Trade Secrets Act cases have
computed the trade secret’s market value by focusing on the defendant’s gain.
See, e.g., University Computing, 504 F.2d at 536 (holding that damages for
misappropriation of trade secrets are measured by the value of the secret to
the defendant “where the [trade] secret has not been destroyed and where the
plaintiff is unable to prove specific injury”); Salisbury Labs., Inc. v. Merieux
Labs., Inc., 908 F.2d 706, 714 (11th Cir. 1990) (ruling that under Georgia’s
UTSA, damages for misappropriation of trade secrets should be based on the
defendant’s gain); SKF USA Inc. v. Bjerkness, 636 F. Supp. 2d 696 (N.D. Ill.
2009). Under the more recent Federal Sentencing Guidelines, the court may
use a defendant’s gain as a loss for the victim in certain circumstances. See
U.S.S.G. § 2B1.1 cmt. n.3(B) (2012).
The Uniform Trade Secrets Act also provides that damages may be based,
as with patent infringement, on a “reasonable royalty”—that is, the amount
the thief would have had to pay the victim in licensing or royalty fees had he
legitimately licensed the stolen technology:
In lieu of damages measured by any other methods, the damages
caused by misappropriation may be measured by imposition
of liability for a reasonable royalty for a misappropriator’s
unauthorized disclosure or use of a trade secret.
Uniform Trade Secrets Act § 3(a) (1985). See, e.g., University Computing, 504
F.2d at 537. When the defendant has not yet realized sufficient profit to readily
indicate the stolen information’s market value, the preferred estimate is the
“reasonable royalty” (or “forced licensing”) measure. See Vitro Corp. of Am.
v. Hall Chem. Co., 292 F.2d 678, 682-83 (6th Cir. 1961); see also Vermont
Microsystems, Inc. v. Autodesk, Inc., 138 F.3d 449, 450 (2d Cir. 1998). Other
federal cases using the “reasonable royalty” method include Mid-Michigan
Computer Sys., Inc. v. Marc Glassman, Inc., 416 F.3d 505, 510-13 (6th Cir.
2005); Molex, Inc. v. Nolen, 759 F.2d 474 (5th Cir. 1985); University Computing
Co., 504 F.2d 518; Secure Energy, Inc. v. Coal Synthetics, LLC, 708 F. Supp. 2d
923, 931-32 (E.D. Mo. 2010); LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d
182, 186-87 (S.D.N.Y. 2002); Carter Prods., Inc. v. Colgate-Palmolive Co., 214
F. Supp. 383 (D. Md. 1963).
But calculating a reasonable royalty may prove more difficult and may
unduly prolong or complicate sentencing in cases where the defendant has not

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yet manifested his intention to use the stolen technology and there is no readily
ascertainable benchmark for determining a reasonable royalty.
Practical Guidance on Gathering Evidence
Because of the flexible nature of valuing trade secrets, prosecutors and
investigators should try to obtain the following types of evidence, if available
and applicable:
• the amount the defendant paid for the trade secret;
• the amount for which the defendant sold or tried to sell the trade secret;
• the amount for which similar trade secret information sold in the
legitimate open market (such as the merger/acquisition price for the
trade secret);
• a reasonable royalty, based on what a willing buyer would pay a willing
seller for the technology in an arms-length transaction;
• the trade secret owner’s research and development costs;
• the market price that the defendant actually received or paid in
exchange for the technology; and
• any other methodology that calculates the reasonably foreseeable
pecuniary losses caused by the defendant’s conduct.
d. Intent to Benefit a Foreign Government, Instrumentality, or Agent—
U.S.S.G. § 2B1.1(b)(5)
The offense level is increased two points if the defendant knew or intended
that the offense would benefit a foreign government, foreign instrumentality,
or foreign agent. See U.S.S.G. § 2B1.1(b)(5). As discussed below, § 2B1.1(b)
(5) will be superseded by a new § 2B1.1(b)(12) on November 1, 2013.
e. Intent to Transport or Transmit the Trade Secret out of the United
States or to Benefit a Foreign Government, Instrumentality, or
Agent—U.S.S.G. § 2B1.1(b)(12) (effective November 1, 2013)
In amendments scheduled to take effect November 1, 2013, the offense
level is increased two points if the defendant knew or intended that the
trade secret would be transported or transmitted out of the United States.
See U.S.S.G. § 2B1.1(b)(12)(A) (proposed). Alternatively, the offense level is
increased four points if the defendant knew or intended that the offense would
benefit a foreign government, foreign instrumentality, or foreign agent, and if
the resulting offense level is less than level 14, it is increased to level 14. See
U.S.S.G. § 2B1.1(b)(12)(B) (proposed).
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In March 2011, the Office of the Intellectual Property Enforcement
Coordinator transmitted a range of legislative proposals to Congress including
a number or recommendations to enhance certain Guidelines, including those
for theft of trade secrets. See Administration’s White Paper on Intellectual
Property Enforcement Legislative Recommendations (March 2011), available
at http://www.whitehouse.gov/sites/default/files/ip_white_paper.pdf. In
response, the Foreign and Economic Espionage Penalty Enhancement Act
of 2012, Pub. L. No. 112-269, § (3)(a), 126 Stat. 2442, 2442-43 (January
14, 2013), directed the United States Sentencing Commission to “review
and, if appropriate, amend” the guidelines “applicable to persons convicted
of offenses relating to the transmission or attempted transmission of a stolen
trade secret outside of the United States or economic espionage, in order
to reflect the intent of Congress that penalties for such offenses under the
Federal sentencing guidelines and policy statements appropriately, reflect the
seriousness of these offenses, account for the potential and actual harm caused
by these offenses, and provide adequate deterrence against such offenses.” On
April 10, 2013, the Commission voted to amend § 2B1.1 to provide the new
two-level enhancement when a trade secret is transmitted outside the United
States, and the new four-level enhancement—with a minimum level of 14—
when the trade secret theft is intended to benefit a foreign government. These
amendments will go into effect on November 1, 2013, unless Congress and
the President act to disapprove them. Because the guidelines are advisory only,
though, these amendments can be cited before then to courts as reasons for
varying from the current guidelines. See, e.g., United States v. Mateos, 623 F.3d
1350 (11th Cir. 2010) (Justice O’Connor, sitting by designation, holding that
forthcoming changes to the sentencing guidelines inform both the sentencing
and reviewing courts on the appropriate sentencing in a given case).
f. Sophisticated Means—U.S.S.G. § 2B1.1(b)(10)(C)
If the offense involved “sophisticated means,” the offense level is increased
by 2 levels, and if the resulting offense is less than 12, it must be increased
to 12. U.S.S.G. § 2B1(b)(10)(C). “‘[S]ophisticated means’ means especially
complex or especially intricate offense conduct pertaining to the execution
or concealment of an offense,” which includes “hiding assets or transactions,”
among other things. Id. cmt. n.8(B).
The sophisticated means enhancement will often apply to trade secret
offenses because these crimes are frequently committed by corporate insiders
who have the need and opportunity to take extensive precautions to shield
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their actions from their employers. A defendant can receive the adjustment
for sophisticated means in addition to the adjustment for use of a special skill
under U.S.S.G. § 3B1.3. See United States v. Ojemon, 465 Fed. Appx. 69, 7172 (2d Cir. 2012); United States v. Rice, 52 F.3d 843, 851 (10th Cir. 1995)
(“The purpose of the special skill enhancement is to punish those criminals who
use their special talents to commit crime. In contrast, the sophisticated means
and more than minimal planning enhancements [in predecessor guideline to
§ 2B1.1] are designed to target criminals who engage in complicated criminal
activity because their actions are considered more blameworthy and deserving
of greater punishment than a perpetrator of a simple version of the crime. We
therefore see no double counting here.”); United States v. Olis, 429 F.3d 540,
549 (5th Cir. 2005), on remand, No. H-03-217-01, 2006 WL 2716048 (Sep.
22, 2006) (upholding loss calculation based on special skill and sophisticated
means, but reducing resulting prison time under the U.S.S.G § 3553(a)
factors); United States v. Minneman, 143 F.3d 274, 283 (7th Cir. 1998).
g. Upward Departure Considerations—U.S.S.G. § 2B1.1
cmt. n.19(A)
A non-exhaustive list of factors in which an upward departure should be
considered is set forth in Application Note 19 to U.S.S.G. § 2B1.1. The factors
that are most likely to be relevant in a trade secret case are intending, risking,
and causing non-monetary harm, such as emotional harm, because many EEA
cases involve disgruntled employees or former employees out for revenge.
U.S.S.G. § 2B1.1 cmt. n.19(i),(ii).
h. Downward Departure Considerations—U.S.S.G. § 2B1.1
cmt. n.19(C)
Application Note 19(C) to U.S.S.G. § 2B1.1 suggests that a downward
departure may be warranted if the offense level “substantially overstates the
seriousness of the offense.” EEA defendants are likely to raise this as a basis for
downward departure if the loss amount greatly outweighs the amount of the
actual or intended gain or loss, as sometimes happens when the trade secret is
valued by research and development costs.
i. Abuse of a Position of Trust—U.S.S.G. § 3B1.3
Trade secret offenses committed by corporate insiders often deserve the
2-level adjustment for abuse of a position of trust under U.S.S.G. § 3B1.3. The
adjustment is appropriate when the defendant had “professional or managerial
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discretion (i.e., substantial discretionary judgment that is ordinarily given
considerable deference)” and the position of trust “contributed in some
significant way to facilitating the commission or concealment of the offense.”
Id. cmt. n.1. A defendant can receive the enhancements for abuse of a position
of trust and sophisticated means simultaneously. See United States v. Ratliff, 376
Fed. Appx. 830, 836-41 (10th Cir. 2010); cf. United States v. Straus, 188 F.3d
520, 1999 WL 565502, at *5 (10th Cir. 1999) (holding that abuse-of-trust
and more-than-minimal-planning enhancements, the latter in a predecessor to
U.S.S.G. § 2B1.1(b)(10)(C), can be applied to same conduct simultaneously).
j. Use of Special Skill—U.S.S.G. § 3B1.3
Trade secret defendants who use their specialized technical knowledge to
understand and use the misappropriated trade secret will often qualify for a
2-level adjustment for use of a special skill under U.S.S.G. § 3B1.3. See, e.g.,
United States v. Lange, 312 F.3d 263, 270 (7th Cir. 2002) (“Drafting skills,
including the use of AutoCAD, are ‘not possessed by members of the general
public’, require time to master, and played a central role in the offense. A
mechanical drafter is in the same category as a pilot or demolition expert—for
those skills, too, may be learned outside the academy. The enhancement was
proper.”).
“‘Special skill’ refers to a skill not possessed by members of the general
public and usually requiring substantial education, training, or licensing.
Examples would include pilots, lawyers, doctors, accountants, chemists, and
demolition experts.” U.S.S.G. § 3B1.3 cmt. n.4. Special skill includes any type
of special skill, not just one gained through advanced education. In Lange, it
applied to a mechanical drafter, an EEA defendant who committed his offense
using his associate’s degree in graphic design and his ability to work with his
former employer’s engineering drawings in AutoCAD. Lange, 312 F.3d at 270.
A defendant can receive the adjustment for use of a special skill in addition
to the adjustment for sophisticated means under U.S.S.G. § 2B1.1(b)(9)(C).
See Ojemon, 465 Fed. Appx. at 71-72.
k. No Downward Departure for Victim’s Participation
in Developing the Case
As noted in Section C.1.k. of this Chapter, the court may not depart
downward on the ground that the victim participated in the prosecution.

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D.

Restitution

Victims have a right to “full and timely restitution as provided in law.” 18
U.S.C. § 3771(a)(6). “All who investigate and prosecute criminal cases play
an important role in determining whether restitution is full and timely. The
scope of the victim’s losses, the nexus between the victim’s losses and the crimes
charged, what happened to ill-gotten gains, and the defendant’s ability to pay
are all integral to the criminal prosecution. Restitution should be considered
early in the investigation and throughout the prosecution.” U.S. Dep’t of
Justice, Attorney General Guidelines for Victim and Witness Assistance, Art. V,
H (2012), available at http://www.justice.gov/olp/pdf/ag_guidelines2012.pdf.
In intellectual property cases, there are two types of victim: the owner of the
intellectual property that was infringed or misappropriated, and any consumer
who was lured into purchasing the infringing goods by fraud. Both types of
victim usually qualify for restitution if they have suffered a loss.
This section discusses restitution for intellectual property crimes. For more
detailed guidance on restitution principles and procedures, prosecutors should
consult the Attorney General Guidelines for Victim and Witness Assistance, cited
above, as well as the U.S. Department of Justice, Prosecutor’s Guide to Criminal
Monetary Penalties: Determination, Imposition and Enforcement of Restitution,
Fines & Other Monetary Impositions (2003) (hereinafter, Prosecutor’s Guide to
Criminal Monetary Penalties), available at http://dojnet.doj.gov/usao/eousa/
ole/usabook/mone/.
1. Restitution is Available—and Often Required—in Intellectual
Property Prosecutions
Most criminal intellectual property defendants must pay their victims
restitution.
Intellectual property offenses in Title 18 require restitution under the
Mandatory Victims Restitution Act of 1996 (“MVRA”), codified in part at 18
U.S.C. § 3663A (“Mandatory restitution to victims of certain crimes”). Under
the MVRA, restitution is mandatory following any “offense against property
under [Title 18] ... including any offense committed by fraud or deceit ... in
which an identifiable victim or victims suffered a pecuniary loss.” 18 U.S.C.
§ 3663A(c)(1)(A)(ii),(B). For offenses committed on or after October 13,
2008, the PRO-IP Act of 2008 made this explicit, creating a new section, 18

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U.S.C. § 2323, dealing specifically with forfeiture, destruction and restitution
for intellectual property offenses, which provides:
(c) Restitution. — When a person is convicted of an offense
under section 506 of title 17 or section 2318, 2319, 2319A,
2319B, or 2320, or chapter 90, of this title, the court, pursuant
to sections 3556, 3663A, and 3664 of this title, shall order
the person to pay restitution to any victim of the offense as an
offense against property referred to in section 3663A(c)(1)(A)
(ii) of this title.
18 U.S.C. § 2323(c); PRO-IP Act of 2008, Pub. L. No. 110-403, § 206, 122 Stat.
4256, 4263 (2008). The restitution provisions in the PRO-IP Act superseded
an amendment passed only two years earlier in the Stop Counterfeiting in
Manufactured Goods Act which made restitution mandatory for violations
of 18 U.S.C. § 2320. See Stop Counterfeiting in Manufactured Goods Act,
Pub. L. No. 109-181, § 1, 120 Stat. 285, 286 (2006); 18 U.S.C. § 2320(b)(4)
(effective March 16, 2006 through October 12, 2008).
The enactment of 18 U.S.C. § 2323 codified a longstanding body of case
law. Intellectual property crimes are offenses against property in two senses:
some defraud unwitting customers into paying money for infringing products,
and all involve intellectual property, which is property as much as any tangible
property. See, e.g., United States v. Carpenter, 484 U.S. 19, 26 (1987) (stating
that confidential information, another type of intangible property, has “long
been recognized as property”); United States v. Trevino, 956 F.2d 276, 1992
WL 39028 (9th Cir. 1992) (table) (in counterfeit trademark prosecution,
affirming order of restitution to nuclear power plant victim that had purchased
counterfeit circuit breakers). The handful of cases on point confirmed that
intellectual property offenses are “offense[s] against property” for the purpose
of § 3663A. See Beydoun, 469 F.3d at 107 (noting that a conviction under 18
U.S.C. § 2320 for trafficking in counterfeit cigarette papers was an “offense
against property” under 18 U.S.C. § 3663A and thus required mandatory
restitution, but finding that the district court calculated incorrectly the
amount of restitution); United States v. Chalupnik, 514 F.3d 748, 751-52
(8th Cir. 2008) (similarly, noting that a conviction under 17 U.S.C. § 506
and 18 U.S.C. § 2319 for criminal copyright infringement was an “offense
against property” under 18 U.S.C. § 3663A, but faulting the district court’s
calculation of restitution); United States v. Chay, 281 F.3d 682, 686 (7th Cir.
2002) (noting that a conviction under 18 U.S.C. § 2318(a) for trafficking in
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counterfeit documents and packaging for computer programs was an “offense
against property” under 18 U.S.C. § 3663A and thus required mandatory
restitution); United States v. Hanna, No. 02 CR. 1364-01(RWS), 2003 WL
22705133, at *3 (S.D.N.Y. Nov. 17, 2003) (stating that a conviction under
18 U.S.C. § 2320 for trafficking in counterfeit trademarked handbags and
other goods requires full restitution under 18 U.S.C. §§ 3663A, 3664); see
also United States v. Cho, 136 F.3d 982, 983 (5th Cir. 1998) (mentioning
restitution in trademark counterfeiting case); United States v. Manzer, 69 F.3d
222, 229-30 (8th Cir. 1995) (upholding restitution award of $2.7 million in
mail fraud, wire fraud, and copyright infringement prosecution for the sale of
modification and cloning packages for unauthorized decryption of premium
channel satellite broadcasts); United States v. Sung, 51 F.3d 92, 96 (7th Cir.
1995) (mentioning restitution in trademark counterfeiting case); United States
v. Bohai Trading Co., 45 F.3d 577, 579 (1st Cir. 1995) (same—restitution
amount of $100,000); United States v. Hicks, 46 F.3d 1128, 1995 WL 20791,
at *3 (4th Cir. 1995) (table) (upholding restitution award in satellite decryption
and copyright case).
These cases support the proposition that restitution is mandatory even
for intellectual property offenses committed prior to enactment of § 2323
on October 13, 2008. Restitution also is mandatory for trademark violations
committed between passage of the Stop Counterfeiting in Manufactured
Goods Act on March 16, 2006, and passage of the PRO-IP Act on October
13, 2008, under the version of 18 U.S.C. § 2320 in effect during that period.
See Stop Counterfeiting in Manufactured Goods Act, Pub. L. No. 108-482,
§ 1, 120 Stat. 285, 286 (2006); 18 U.S.C. § 2320(b)(4) (effective March 16,
2006 through October 12, 2008).
There are two statutory exceptions to mandatory restitution in § 3663A:
“if (A) the number of identifiable victims is so large as to make restitution
impracticable; or (B) determining complex issues of fact related to the cause
or amount of the victim’s losses would complicate or prolong the sentencing
process to a degree that the need to provide restitution to any victim is
outweighed by the burden on the sentencing process.” 18 U.S.C. § 3663A(c)
(3). Defendants can be expected to argue for one or both of these exceptions
in cases of online copyright piracy that involve a large number of copyrighted
works owned by a large number of victims, in cases involving retail counterfeit
goods that were sold to a large number of defrauded customers, and in trade
secret cases that involve complex issues of valuation. “This ‘exception’ was
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intended to be used sparingly, and the court is expected to use every means
available, including a continuance of the restitution determination of up to
90 days, if necessary, to identify as many victims and harms to those victims
as possible.” Prosecutor’s Guide to Criminal Monetary Penalties at 28 (citing
18 U.S.C. § 3664(d)(5) and United States v. Grimes, 173 F.3d 634 (7th Cir.
1999)). Department policy also requires that when this exception does apply,
“where forfeited assets are involved, prosecutors should consult with the
Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS)
to determine the most effective way of returning forfeited assets to victims,”
and “[i]n cases with multiple defendants, the court should be asked to address
joint and several liability.” U.S. Dep’t of Justice, Attorney General Guidelines
for Victim and Witness Assistance, Art. V, H.1.g (2012). Prosecutors should also
ask the court to order restitution “for those victims and harms the court can
identify,” Prosecutor’s Guide to Criminal Monetary Penalties at 30 (discussing
similar exception for discretionary restitution). How to ensure restitution
in such situations is addressed below in the discussion of determining the
restitution amount.
Another possible exception to mandatory restitution may exist for criminal
trademark, service mark, and certification mark cases under 18 U.S.C. § 2320
in which the mark-holder neglected to use the ® symbol (or other proper notice)
and the defendant lacked actual notice that the mark was registered. In those
cases, however, even though restitution might not be awarded to the markholder, it should still be awarded to any customers of the defendant who were
defrauded into buying what they thought were authentic goods or services. See
Section E.3. of Chapter III of this Manual.
In addition, certain intellectual property offenses are simply not covered by
the mandatory restitution provisions in 18 U.S.C. § 3663A, which apply only
to an “offense against property under this title [18].” 18 U.S.C. § 3663A(c)
(1)(A)(ii). First, this excludes non-Title 18 offenses, such as violations of the
DMCA, see 17 U.S.C. § 1204, and unauthorized reception of cable and satellite
service, see 47 U.S.C. §§ 553(b)(2), 605.
Second, this excludes even Title 18 crimes which are not offenses against
property. Violations of 18 U.S.C. § 2319A (bootlegging) committed prior to
passage of § 2323 may fall into this category. Defendants can argue that those
crimes are not offenses against property on the ground that bootleg music
and music video recordings do not infringe copyrighted property, see Section
F. of Chapter II of this Manual, or any other type of property, and that any
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revenues from these offenses do not represent an actual pecuniary harm to
the victim because bootleg music and music video recordings do not decrease
artists’ sales. Prosecutors may wish to consult CCIPS at (202) 514-1026 to
discuss restitution in § 2319A convictions for offenses committed prior to
October 13, 2008.
Fortunately, even for intellectual property offenses committed before
passage of § 2323 and not covered by the mandatory restitution provisions,
there are other mechanisms to obtain restitution. First, restitution can always
be made part of a plea agreement. See 18 U.S.C. § 3663(a)(3). Second, a court
can order discretionary restitution in any intellectual property criminal case
as a condition of probation or of supervised release after imprisonment. See
18 U.S.C. §§ 3563(b)(2) (probation), 3583(d) (supervised release). A good
example of these principles is United States v. Lexington Wholesale Co., 71 Fed.
Appx. 507 (6th Cir. 2003), in which a defendant was convicted for selling
infant formula repackaged with counterfeit trademarks and without an accurate
“use by” date, which resulted in one count for criminal trademark violations
under 18 U.S.C. § 2320 and one count for misbranded food or drugs under
Title 21. 71 Fed. Appx. at 508. The sentencing court imposed restitution to
the victim of the misbranding count only, which the defendant argued was
improper because restitution is authorized only for offenses under Title 18,
not Title 21. Id. The appellate court affirmed restitution on the ground that it
was authorized as a condition of probation and also by the plea agreement. Id.
at 508-09. Finally, restitution is available for pre-PRO-IP Act violations of 18
U.S.C. § 2319A under the discretionary provisions of 18 U.S.C. § 3663(a)(1)
(A), which do not limit restitution to offenses against property.
In deciding whether to award discretionary restitution, the court must
consider not only the victim’s loss, but also the defendant’s financial resources.
18 U.S.C. § 3663(a)(1)(B)(i); see also § 3563(b)(2) (allowing court to order
restitution to a victim as a condition of probation “as [] reasonably necessary”
and without regard to the limitations on restitution in § 3663(a) and § 3663A(c)
(1)(A)). Mandatory restitution requires full restitution. Prosecutor’s Guide to
Criminal Monetary Penalties at 29-30. There is, however, a presumption for full
restitution, even in discretionary restitution cases. Id. The Department’s policy
is to require full restitution in discretionary cases (assuming the defendant’s
current or future economic circumstances warrant it), but in discretionary cases
to require nominal payment if economic circumstances so warrant. Id. at 30.

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With respect to awarding discretionary restitution, the court should
also consider whether “the complication and prolongation of the sentencing
process ... outweighs the need to provide restitution.” 18 U.S.C. § 3663(a)(1)
(B)(ii). Again, however, the Department advises that “prosecutors should only
ask the court to apply this provision narrowly, i.e., only to whatever portion of
restitution it may be applicable, and to impose restitution for those victims and
harms the court can identify.” Prosecutor’s Guide to Criminal Monetary Penalties
at 30.
Department policy requires consideration of the availability of restitution
when making charging decisions, and to structure plea agreements to
provide restitution whenever possible. See U.S. Dep’t of Justice, Attorney
General Guidelines for Victim and Witness Assistance, Art. V, H.1.b (2012)
(stating that “[w]hen exercising their discretion, prosecutors should give due
consideration to the need to provide full restitution to the victims of federal
criminal offenses,” among other charging considerations), V, H.1.d (stating
that “[w]hen reasonably possible, plea agreements should identify victims’
losses for purposes of restitution and address the manner of payment”). If one
of the charges would require restitution, the plea agreement should require
full restitution even if the defendant pleads guilty to a charge that would not
require restitution. Id. (citing USAM 9-16.320).
2. Identifying Victims Who Qualify for Restitution
Prosecutors should consider all victims who suffered a loss, from the
intellectual property rights-holder, to distributors, and to the direct purchaser
and ultimate consumer of the infringing good.
Generally, the intellectual property rights-holder whose works were
infringed or misappropriated qualifies for restitution. This is clear in cases
involving copyrights, trademarks, and trade secrets. As noted in Section D.1.
of this Chapter, however, DMCA offenses do not qualify for mandatory
restitution. The court, of course, may still order discretionary restitution. See
United States v. Whitehead, 532 F.3d 991, 993 (9th Cir. 2008) (in a DMCA case,
finding reasonable a sentence including restitution). Moreover, the company
whose technological measures are circumvented may be entitled to restitution
if the company also owns copyrighted works that were infringed as a result of
the circumvention. United States v. Oliver, No. 8:02CR3, 2005 WL 1691049,
at *5 (D. Neb. July 18, 2005) (“Even if Sony had made money as a result of the
defendant’s criminal conduct [in modifying Sony Playstations to play pirated
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games in violation of the DMCA], it simply does not negate the fact that
the defendant is guilty of violating Sony’s copyright [by modifying the game
machines to play pirated Sony games].”). Similarly, satellite service providers
may be eligible for restitution from the sellers of circumvention devices for
the amount customers would have paid for the extra channels they obtained
fraudulently. See Brereton, 196 Fed. Appx. at 693 (affirming restitution order
based on loss to DIRECTV of payments from top customers who purchased
illicit access cards from defendant); United States v. Manzer, 69 F.3d 222, 230
(8th Cir. 1995) (affirming restitution order for defendant who sold modified
TV descrambling devices even though he was not actually convicted of a
violation of 47 U.S.C. § 605(e)(3)(C)(i)(II) because this was nevertheless part
of his scheme to defraud underlying his wire fraud conviction); United States
v. Hicks, 46 F.3d 1128, 1995 WL 20791, at *1 (4th Cir. Jan. 20, 1995) (table)
(holding that defendant convicted of selling modified satellite TV descrambling
devices in violation of 47 U.S.C. § 605(e)(4) was not liable for restitution to
descrambling device manufacturers because they had been fully compensated
when they originally sold their devices, but ordering restitution to satellite service
providers for what customers would have paid for the additional channels they
could receive because of the defendant’s modifications). Industry associations
that represent intellectual property rights holders can, in some circumstances,
help identify rights holders and receive and distribute the restitution to the
rights holders. For a listing of industry contacts, see Appendix G or contact
CCIPS at (202) 514-1026.
At least one court has held that a distributor, in addition to the rights
holders, may qualify for restitution. In United States v. Chalupnik, 514 F.3d
748 (8th Cir. 2008), the court found that BMG Columbia House, which
sells copyrighted CDs and DVDs, was a victim for purposes of restitution,
but ultimately declined to order restitution because BMG could not prove
lost sales from defendant’s scheme to sell discarded BMG discs to used record
stores. Id. at 753-54. See Section D.3. of this Chapter.
Defrauded purchasers—if any—are entitled to restitution as well. See,
e.g., United States v. Trevino, 956 F.2d 276, 1992 WL 39028 (9th Cir. 1992)
(table) (in counterfeit trademark prosecution, affirming order of restitution to
nuclear power plant victim that had purchased counterfeit circuit breakers). A
defendant who has defrauded a large number of consumers can be expected to
argue that restitution is not required because the class of defrauded consumers
is impracticably large or difficult to identify. See 18 U.S.C. § 3663A(c)(3).
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There are procedures for ordering restitution for victims who can be identified
by name but cannot presently be located at a particular address. See United
States v. Berardini, 112 F.3d 606, 609-12 (2d Cir. 1997).
Consumers who knew that they were purchasing counterfeits generally do
not qualify as victims, because they have not been harmed. Distinguishing
between consumers who were and were not defrauded may be a challenge.
In determining whether an involved party qualifies as a victim for the
purpose of restitution, the court will distinguish between those harmed by the
defendant’s relevant conduct and those harmed by the offense of conviction.
(The rest of this paragraph consists largely of excerpts from the Prosecutor’s
Guide to Criminal Monetary Penalties at 32, with minor edits.) The court is
statutorily authorized to impose restitution only to identifiable victims of the
acts that are part of the offense of conviction. In Hughey v. United States, 495
U.S. 411, 413 (1990), the Supreme Court held that the restitution statutes
limit restitution to “the loss caused by the specific conduct that is the basis of
the offense of conviction.” Restitution is not authorized for acts merely related
to the offense of conviction, such as acts that are within “relevant conduct”
under guideline sentencing (U.S.S.G. § 1B1.3), but are outside the actual
offense of conviction itself. Under the primary restitution statutes, amended
after the Hughey decision, a victim is “a person directly and proximately
harmed as a result of the commission of an offense for which restitution may be
ordered.” 18 U.S.C. §§ 3663A(a)(2), 3663(a)(2). This includes, in a case where
the offense of conviction includes a scheme, conspiracy, or pattern of criminal
activity, “any person directly harmed by the defendant’s criminal conduct in the
course of the scheme, conspiracy, or pattern” of criminal activity. Id. Therefore,
prosecutors should charge such offenses to indicate the specific nature and
full extent of the acts that constitute the scheme, conspiracy, or pattern of
which the offense of conviction is involved, in order to permit the broadest
imposition of restitution.
If the acts for which restitution is sought are outside the offense of
conviction and cannot be otherwise tied to a scheme, pattern, or conspiracy
that is an element of the offense of conviction, then restitution is unavailable.
Under this rule, restitution is generally not triggered by one kind of act if the
offense of conviction describes another kind of act, even if the acts are logically
related in purpose or intent. See, e.g., United States v. Blake, 81 F.3d 498 (4th
Cir. 1996) (court denied restitution to victims for use of stolen credit cards
where offense of conviction was possession of stolen credit cards); United States
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v. Hayes, 32 F.3d 171 (5th Cir. 1994); cf. In re Doe, 264 Fed. Appx. 260, 26364 (4th Cir. 2007) (court denied restitution to petitioner seeking restitution
for addiction to prescription pain medication from defendant pharmaceutical
company’s misbranding offense where she provided no evidence that she relied
on any false or misleading information).
Other courts apply this rule less strictly. For example, to determine the
existence of a scheme and what acts it included for purposes of restitution,
some courts will consider the facts alleged in the indictment, proven at trial,
or admitted in the plea colloquy. See, e.g., United States v. Ramirez, 196 F.3d
895 (8th Cir. 1999); United States v. Jackson, 155 F.3d 942 (8th Cir. 1998);
United States v. Hughey, 147 F.3d 423, 438 (5th Cir. 1998) (suggesting that
restitution might have been triggered by acts not in the indictment had they
been established by the trial record)
If no scheme, conspiracy, or pattern encompasses the acts for which injured
parties seek restitution, restitution will likely be limited in two respects. First, a
party who was injured solely by an act outside the offense of conviction—such
as a party whose losses were proved only as relevant conduct—cannot obtain
restitution. Second, a party who was injured by the offense of conviction can
obtain restitution only for the offense-of-conviction acts and not acts proved
only as relevant conduct at sentencing—even relevant conduct that counted
towards the loss or infringement amount; however, some courts may still allow
restitution for this type of relevant conduct if it is alleged in the indictment or
proved at trial, not just at sentencing. The exception to both these limitations
is, of course, restitution ordered pursuant to a stipulation in a plea agreement.
See 18 U.S.C. § 3663(a)(3).
Application of these principles to an intellectual property crime occurred
in United States v. Manzer, 69 F.3d 222 (8th Cir. 1995), in which the court
ordered $2.7 million in restitution from a defendant convicted of mail fraud,
wire fraud, and criminal copyright infringement for trafficking in cloned
computer chips. The cloned chips would allow satellite descrambling devices
to decrypt cable satellite signals without authorization. The defendant objected
to the $2.7 million restitution award on the ground that it included sales not
identified in the indictment. Id. at 229-30. The Eighth Circuit disagreed,
holding that the mail and wire fraud counts alleged a scheme to defraud that
“encompass[ed] transactions beyond those alleged in the counts of conviction,”
including the sales not otherwise identified in the indictment. Id. at 230
(citation and internal quotation marks omitted). Note that the restitution
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might have been limited to the sales alleged in the indictment if the defendant
had pleaded to or been convicted of only the copyright charge.
There are several ways to help ensure that restitution is awarded for harm
caused. As part of any plea deal, the government should require the defendant
to plead to the counts that offer maximum restitution, or the government
should insist upon a comprehensive plea agreement that provides restitution
to the victims of relevant offense conduct (whether the statutes or offenses of
conviction provide for it or not). See 18 U.S.C. § 3663(a)(3) (allowing court to
order restitution as provided in plea agreement); Prosecutor’s Guide to Criminal
Monetary Penalties at 22-24.
At the beginning of the case, prosecutors should draft the indictment to
maximize restitution. Id. at 21. As the Prosecutor’s Guide to Criminal Monetary
Penalties counsels:
Prosecutors should avoid the “scheme” restitution pitfalls by:
a) Charging offenses that involve the statutory elements of an
“intent to defraud” or “intent to deceive” in the traditional
wire/mail fraud (or conspiracy) format, where the scheme (or
conspiracy) is described in detail and incorporated by reference
into each specific act count; and
b) Making sure the dates alleged as the beginning and end of
the scheme or conspiracy include all acts in furtherance of the
scheme or conspiracy for which restitution should be imposed.
Id. at 22. Moreover, “[s]imply tracking the statutory language of such offenses
does not clarify if the acts of conviction are part of a scheme, i.e., whether
different kinds of acts make up a scheme to ‘defraud’ or ‘deceive.’ Numerous
restitution orders have been vacated in such cases due to ambiguity of the
‘scheme’ issue.” Id. The same concerns apply to whether acts in addition to those
alleged as overt acts of a conspiracy can qualify as part of the conspiracy for
purposes of awarding restitution. The Prosecutor’s Guide to Criminal Monetary
Penalties discusses specific ways to structure restitution provisions in a plea
agreement to maximize restitution. Id. at 23-24.
3. Determining a Restitution Figure
Once the government has identified the people and entities who might be
classified as victims—consumers who were defrauded and intellectual property
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rights holders—the next question is how to calculate what the victims are
owed, if anything.
To begin with, as discussed in the prior section, the restitution award must
be based on the loss caused by the defendant’s offense of conviction.
After determining which victims and transactions qualify for restitution,
the government must determine how the restitution should be calculated. The
most important principle is that restitution is intended to make the victims
whole by compensating them for their losses. See 18 U.S.C. §§ 3663(a)(1)
(B)(i)(I), 3663A(b), 3664(a); U.S.S.G. § 5E1.1(a). This principle has several
consequences.
First, the restitution order should require the defendant to return any of
the victim’s property that he took. See 18 U.S.C. §§ 3663(b)(1)(A), 3663A(b)
(1)(A), 3664(f )(4)(A). This principle applies across all intellectual property
offenses:
• In trade secret offenses, the defendant should be required to return the
trade secret and any other items that he took from the owner of the
trade secret.
• In infringement cases, the defendant should be required to return
the money he accepted from the customers he defrauded (if any—in
some cases the customers knew that they were receiving counterfeits).
Although the defendant might argue that he is entitled to offset the
value of the goods the defrauded customers received, often that value
is next to nothing. Compare United States v. West Coast Aluminum Heat
Treating Co., 265 F.3d 986, 992 (9th Cir. 2001) (“And, by reducing
the loss calculation to account for the partial benefit gained by the
government, the district court remained consistent with the rule that
the victim’s loss should be offset by the victim’s benefit.”), and United
States v. Matsumaru, 244 F.3d 1092, 1109 (9th Cir. 2001) (holding
that restitution of the purchase price for the business the victim paid for
and was promised but did not receive, must be offset by the value of the
van and business license he did receive), with United States v. Angelica,
859 F.2d 1390, 1394 (9th Cir. 1988) (affirming trial court’s refusal to
offset restitution award by value of substitute property given to victims,
because there was “no abuse of discretion in the district court’s decision
to disregard the value of the inexpensive garnets that were unwanted by
the victims and substituted for their diamonds as part of the fraudulent
scheme”), and United States v. Austin, 54 F.3d 394, 402 (7th Cir. 1995)
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•

354

(holding that “even if the [counterfeit or misrepresented art] pieces
Austin sold ... were not completely worthless, $0 was the best estimate
of their worth” for purposes of calculating loss).
In infringement cases—and perhaps trade secret cases as well—the
defendant should also compensate the intellectual property rightsholder victims for any sales that he diverted from them. See United States
v. Milstein, 481 F.3d 132, 136-37 (2d Cir. 2007) (finding, in criminal
trademark prosecution, that restitution should be based on the rights
holders’ “lost sales,” as provided in the civil trademark provisions of the
Lanham Act, 15 U.S.C. § 1117(a)(1)-(2); those sales represented the
“value of the property” cited in the Victim and Witness Protection Act
of 2008, 18 U.S.C. § 3663(b)(1)(B)); United States v. Sung, 51 F.3d 92,
94 (7th Cir. 1995) (holding, in criminal trademark prosecution, that
“[r]estitution in a criminal case is the counterpart to damages in civil
litigation”). If the defendant’s conduct did not divert any sales from the
victim, then the victim may not be entitled to restitution. See United States
v. Chalupnik, 514 F.3d 748, 755 (8th Cir. 2008) (reversing restitution
order because victim offered only speculation as to lost sales); United
States v. Hudson, 483 F.3d 707, 710-11 (10th Cir. 2007) (reversing
restitution order because no evidence that victim Microsoft suffered
lost sales as result of defendant’s conduct); United States v. Foote, No.
CR.A. 00-20091-01-KHV, 2003 WL 22466158, at *7 (D. Kan. July
31, 2003) (refusing to award restitution to trademark-holders because
the government proposed no reliable estimate of the victim’s losses and
citing cases for the need to prove lost profits). A defendant is most likely
to divert sales from the victim when he has defrauded customers into
thinking that his product or service is authentic, although he may have
a counter-argument if his prices were sufficiently under the authentic
price that his customers would have been unlikely to pay the victim
the full price for the real thing. A consumer who pays $20 for a highquality (or even a low-quality) fake purse might not have paid full price
($120 to $700) for the real purse, and thus his purchase of the fake
might not represent a lost sale to the victim. Similarly, some computer
users who download a $60,000 engineering program for free from an
infringing website or peer-to-peer network may be “trophy hunters”
who would not have paid full price for an authorized copy, whereas
other downloaders may be businesspeople who would have paid full
price had the free download not been available. Restitution orders
Prosecuting Intellectual Property Crimes

•

•

•

should differentiate between these situations, to the extent possible.
Prosecutors might also try to introduce evidence establishing that the
availability of high-quality infringing works affected the market for the
victim’s product. See Brooktree Corp. v. Advanced Micro Devices, Inc.,
977 F.2d 1555, 1579 (Fed. Cir. 1992) (civil case upholding “actual
damages” calculation based on evidence that plaintiff had been forced
to lower its prices as a result of defendant’s infringing activities).
Restitution based on lost sales is generally not calculated by the
defendant’s gain, but rather by the victim’s loss. Foote, 2003 WL
22466158, at *7. For example, in United States v. Martin, 64 Fed.
Appx. 129 (10th Cir. 2003), the total value of the items infringed
was $1,143,395, but the restitution equaled only $395,000—the
retail value multiplied by the rights-holder’s profit margin. As Martin
illustrates, restitution is based on lost net profits, not on total retail
price. See United States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006).
Nevertheless, the defendant has no right to have his own costs offset
against his gain. United States v. Chay, 281 F.3d 682, 686-87 (7th Cir.
2002).
When the evidence of infringement consists of the defendant’s inventory
of infringing product rather than his actual sales—and the defendant
therefore argues against any restitution for lack of actual diverted
sales—the government may argue that the inventory is a reasonable
estimate of the defendant’s past sales. This argument is likely to be most
persuasive when the defendant’s inventory is counted after he has been
in business for a long time. Inventory is more likely to overstate past
sales when a business is just starting out, and to understate past sales
when the business has been successful and ongoing for a substantial
time.
At least one court has held that restitution in a criminal intellectual
property case can be based on the amount of statutory damages that
the victim could have obtained from the defendant in a civil case, but
this was a case in which the statutory damages likely understated the
actual damages. See United States v. Manzer, 69 F.3d 222, 229-30 (8th
Cir. 1995) (upholding restitution award in descrambler case of $2.7
million for 270 cloning devices based on minimum statutory damages
of $10,000 per device, where victim provided loss figure of over $6.8
million). Statutory damages are available in civil suits for a variety of
intellectual property violations. See, e.g., 15 U.S.C. § 1117(c) (statutory

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•

damages of $1,000-$200,000 (up to $2 million if infringement
was willful) per counterfeit mark per type of goods or services); 17
U.S.C. § 504(c) (statutory damages of $750-$30,000 (up to $150,000
if infringement was willful) per infringed work); 47 U.S.C. § 605(e)
(3)(C)(i)(II) (statutory damages of $10,000-$100,000 per violation).
See also Roger D. Blair & Thomas F. Cotter, An Economic Analysis of
Damages Rules in Intellectual Property Law, 39 Wm. & Mary L. Rev.
1585, 1651-72 (1998) (discussing economic theory of statutory
damages in copyright law).
If the defendant earned a profit from his crime but the court finds that
restitution is too difficult to calculate, the court can nevertheless take
away the defendant’s gain by imposing a fine in the amount of his gain.
See Foote, 2003 WL 22466158, at *7.

Second, the restitution order should compensate the victim for any money
spent to investigate the defendant’s conduct, whether during the victim’s own
investigation or while helping the government investigate and prosecute. These
costs often arise in intellectual property cases: employers conduct internal
investigations into their employees’ theft of trade secrets, and copyright and
trademark-holders often hire private investigators to monitor and investigate
suspected infringers. The mandatory and discretionary restitution statutes both
authorize restitution “for lost income and necessary child care, transportation,
and other expenses [related to / incurred during] participation in the
investigation or prosecution of the offense or attendance at proceedings related
to the offense.” 18 U.S.C. §§ 3663(b)(4), 3663A(b)(4). These provisions
have been interpreted to cover not only the victim’s expenses in helping the
government, but also the costs of the victim’s own investigation. See United
States v. Brown, 150 Fed. Appx. 575 (8th Cir. 2005) (per curiam) (awarding
restitution to victim company for staff investigation costs into reconstructing
and correcting financial records related to defendant’s embezzlement, where
defendant contested proof of amount but not whether investigative costs as a
category are awardable); United States v. Beaird, 145 Fed. Appx. 853 (5th Cir.
2005) (per curiam) (affirming $200,000 award of restitution for attorney’s fees
and litigation expenses associated with assisting the FBI’s investigation); United
States v. Gordon, 393 F.3d 1044, 1049, 1056-57 (9th Cir. 2004) (discussing
reimbursement of investigative costs in depth, in case affirming $1,038,477
in restitution for costs of company’s internal investigation and responses to
grand jury subpoenas), cert. denied, 126 S. Ct. 472 (2005); see also United
States v. Susel, 429 F.3d 782, 784 (8th Cir. 2005) (per curiam) (affirming award
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of software company’s administrative and transportation expenses during
participation in the investigation and prosecution of the offense in criminal
copyright case). But see United States v. Saad, 544 F. Supp. 2d 589, 592 (E.D.
Mich. 2008) (denying restitution for investigative and legal costs incurred by
victim who pursued civil litigation arising from defendant’s criminal conduct).
Third, as explained above in Section D.1. of this Chapter, in deciding
whether to award discretionary restitution, the court must consider not only the
victim’s loss, but also the defendant’s financial resources. 18 U.S.C. § 3663(a)
(1)(B)(i). A presumption for full restitution exists even in discretionary
restitution cases. Prosecutor’s Guide to Criminal Monetary Penalties at 29-30.
Unless economic circumstances warrant nominal payment, Department policy
requires full restitution in discretionary cases. Id. at 30. In no case shall the fact
that a victim has received or is entitled to receive compensation with respect
to a loss from insurance or any other source be considered in determining the
amount of restitution. 18 U.S.C. § 3664(f )(1)(B).
Fourth, victims have an important role in helping to determine the
appropriate amount of restitution. The government must consult with
witnesses and the court to consider victims’ evidence at sentencing. See 42
U.S.C. § 10607(c)(3)(G); U.S. Dep’t of Justice, Attorney General Guidelines
for Victim and Witness Assistance, Art. IV, I.2 (2012). See generally Chapter
X of this Manual (Victims). The criminal intellectual property statutes
similarly require the court to consider victims’ evidence at sentencing. See 18
U.S.C. §§ 2319(d), 2319A(d), 2319B(e), 2320(e). The pre-sentence report
must also include a verified assessment of victim impact in every case. Fed. R.
Crim. P. 32(d)(2)(B). Trade associations can be very helpful in providing victim
impact statements, particularly when an offense involves a large quantity and
variety of infringing products. See the listing of intellectual property contacts
in Appendix G of this Manual.

E.

Forfeiture

In criminal intellectual property cases, forfeiture can serve several
important functions. Forfeiting infringing items removes them from the
stream of commerce so they cannot be sold or redistributed. Forfeiting the
tools and equipment that defendants use to commit intellectual property
crimes—ranging from manufacturing equipment to computers to domain
names used by infringing websites—prevents their use to commit further IP
VIII. Penalties, Restitution, and Forfeiture

357

crime. Forfeiting the proceeds of intellectual property crime—the revenues and
profits—prevents their reinvestment in a criminal enterprise. Finally, forfeiture
can serve as a powerful deterrent.
For IP offenses committed on or after October 13, 2008, forfeiture is fairly
straightforward. The Prioritizing Resources and Organization for Intellectual
Property (PRO-IP) Act of 2008 created a new section, 18 U.S.C. § 2323,
which expressly authorizes forfeiture for intellectual property offenses:
(a) Civil forfeiture.
(1) Property subject to forfeiture. The following property is
subject to forfeiture to the United States Government:
(A) Any article, the making or trafficking of which
is, prohibited under section 506 of title 17, or section 2318,
2319, 2319A, 2319B, or 2320, or chapter 90, of this title.
(B) Any property used, or intended to be used, in any
manner or part to commit or facilitate the commission of an
offense referred to in subparagraph (A).
(C) Any property constituting or derived from any
proceeds obtained directly or indirectly as a result of the
commission of an offense referred to in subparagraph (A).
(2) Procedures. The provisions of chapter 46 relating to
civil forfeitures shall extend to any seizure or civil forfeiture
under this section. For seizures made under this section, the
court shall enter an appropriate protective order with respect
to discovery and use of any records or information that has
been seized. The protective order shall provide for appropriate
procedures to ensure that confidential, private, proprietary,
or privileged information contained in such records is not
improperly disclosed or used. At the conclusion of the forfeiture
proceedings, unless otherwise requested by an agency of the
United States, the court shall order that any property forfeited
under paragraph (1) be destroyed, or otherwise disposed of
according to law.
(b) Criminal forfeiture.

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(1) Property subject to forfeiture. The court, in imposing
sentence on a person convicted of an offense under section 506
of title 17, or section 2318, 2319, 2319A, 2319B, or 2320,
or chapter 90, of this title, shall order, in addition to any
other sentence imposed, that the person forfeit to the United
States Government any property subject to forfeiture under
subsection (a) for that offense.
(2) Procedures.
(A) In general. The forfeiture of property under
paragraph (1), including any seizure and disposition of the
property and any related judicial or administrative proceeding,
shall be governed by the procedures set forth in section 413 of
the Comprehensive Drug Abuse Prevention and Control Act
of 1970 (21 U.S.C. 853), other than subsection (d) of that
section.
(B) Destruction. At the conclusion of the forfeiture
proceedings, the court, unless otherwise requested by an agency
of the United States shall order that any-(i) forfeited article or component of an article
bearing or consisting of a counterfeit mark be destroyed or
otherwise disposed of according to law; and
(ii) infringing items or other property described in
subsection (a)(1)(A) and forfeited under paragraph (1) of this
subsection be destroyed or otherwise disposed of according to
law.
PRO-IP Act of 2008, Pub. L. No. 110-403, § 206, 122 Stat. 4256, 4262-63
(2008); 18 U.S.C. § 2323. Notably, the PRO-IP Act makes criminal forfeiture
mandatory for all offenses covered by the act. See 18 U.S.C. § 2323(b)(1).
For intellectual property offenses committed prior to passage of the PROIP Act, forfeiture is governed by a complex web of forfeiture statutes. This
Chapter is not a definitive guide to forfeiture law, but rather it provides a
basic overview of the forfeiture remedies available in IP crimes. Prosecutors
with questions concerning forfeiture practice and procedure should contact the
forfeiture expert in their office or the Criminal Division’s Asset Forfeiture and
Money Laundering Section at (202) 514-1263.
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359

1. Property Subject to Forfeiture
Intellectual property crimes give rise to three general categories of forfeitable
property:
1) Contraband items, which include infringing copyrighted
copies and phonorecords; goods, labels, documentation, and
packaging that bear counterfeit trademarks, service marks,
or certification marks; and unauthorized recordings of live
musical performances. See 49 U.S.C. § 80302(a)(6) (defining
“contraband”). These items are subject to forfeiture under the
PRO-IP Act, see 18 U.S.C. § 2323(a)(1)(A), and they were
generally forfeitable prior to its enactment on October 13,
2008. See, e.g., 18 U.S.C. § 2320(b)(3)(A)(iii).
2) Proceeds derived from the commission of an IP offense. These
are subject to forfeiture under the PRO-IP Act, see 18 U.S.C.
§ 2323(a)(1)(C), and they were usually forfeitable prior to its
enactment. See, e.g., 18 U.S.C. § 1834(a)(1) (effective October
11, 1996 through October 12, 2008); 18 U.S.C. 2320(b)(3)
(A)(i) (effective March 16, 2006 through October 12, 2008).
3) Facilitating property, that is, property that was used to commit
or facilitate the IP offense, such as plates, molds or masters
used to produce copyright-infringing works; computers,
tools, equipment, and supplies used to produce counterfeit
goods; and vehicles used to traffic in any of the above. Such
property is subject to forfeiture under the PRO-IP Act, see 18
U.S.C. § 2323(a)(1)(B); prior to the act’s passage, forfeiture
of facilitating property was available in many cases, but its
availability varied substantially depending on the specific IP
offense, the type of property, and the type of forfeiture sought;
see, e.g., 18 U.S.C. § 1834(a)(2) (effective October 11, 1996
through October 12, 2008); 18 U.S.C. 2320(b)(3)(A)(ii)
(effective March 16, 2006 through October 12, 2008).
2. Overview of Forfeiture Procedures
There are three types of forfeiture procedures: administrative, civil,
and criminal. This section gives a brief overview and includes a table that

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summarizes the types of forfeiture available for each kind of property, organized
by intellectual property offense.
a. Administrative Forfeiture Proceedings
Administrative forfeiture occurs when a law enforcement agency forfeits
property in an administrative, non-judicial matter. As with the other types
of forfeiture procedure, administrative forfeiture is available only pursuant to
a specific statute that authorizes such a procedure. Administrative forfeiture
commences once an agency seizes property and then sends or publishes notice
of the property seizure within the prescribed deadlines. If nobody responds to
the notice by filing a claim of ownership claim within the allotted time, the
property is forfeited without involving a prosecutor or judge. If a claim is filed,
the seizing agency must either return the property or seek forfeiture through a
judicial procedure.
With the passage of the PRO-IP Act on October 13, 2008, administrative
forfeiture is now available for all IP offenses except violations of the DMCA.
See 18 U.S.C. § 2323(a)(2). Administrative forfeiture is also available for
some IP offenses under several other statutes, including: 17 U.S.C. § 603(c)
(copyright-infringing imports and exports); 19 U.S.C. § 1526(e) (trademarkinfringing imports); 18 U.S.C. § 981(d) and 19 U.S.C. §§ 1607-09 (proceeds);
49 U.S.C. § 80304 (facilitating property).
Real property and personal property (other than monetary instruments)
that are worth more than $500,000 can never be forfeited in an administrative
proceeding. See 19 U.S.C. § 1607; 18 U.S.C. § 985.
b. Civil and Criminal Proceedings
Unlike administrative forfeiture proceedings, civil and criminal forfeiture
are judicial actions that require the involvement of prosecutors and the courts.
Criminal forfeiture is an in personam proceeding that begins with a
forfeiture allegation in an indictment and is then executed as part of a
defendant’s sentence. It thus requires a conviction and is limited to property
belonging to the defendant that was involved in the offense of conviction.
Criminal forfeiture cannot reach a third-party’s property, even if the defendant
used the third-party’s property to commit the crime.
Whereas criminal forfeiture is an in personam action against the defendant,
civil forfeiture is an in rem action against the property itself. This means that
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361

civil forfeiture proceedings can reach property regardless of who owns it, if the
government can prove that the property was derived from or used to commit
a crime. Civil forfeiture proceedings are not part of a criminal case at all.
The burden of proof is a preponderance of the evidence, and civil forfeiture
proceedings can dispose of property even without a criminal conviction or the
filing of any criminal charges.
c. Table of Forfeiture Provisions Arranged by Criminal IP Statute
The following table indicates the types of forfeiture available for intellectual
property offenses committed since passage of the PRO-IP Act on October
13, 2008. For a listing of the types of forfeiture available prior to that, see
Appendix I. Note that administrative forfeiture is generally available for vessels
used to transport contraband items pursuant to 49 U.S.C. § 80304. Note also
that even where forfeiture of proceeds from intellectual property offenses is not
provided for expressly, it may be available indirectly through money laundering
statutes.
Criminal Copyright Infringement
Administrative

362

Infringing Items

Yes.
• 17 U.S.C. §§ 602-603 (prohibiting
imports and exports of infringing
copies).
• 18 U.S.C. § 2323(a)(2) (permitting
administrative forfeiture of
infringing items forfeitable civilly).
• 19 U.S.C. §§ 1595a, 1607-09
(forfeiture & seizure by CBP of
infringing items).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2) (permitting
administrative forfeiture of
facilitating property forfeitable
civilly).
• 19 U.S.C. §§ 1595a, 1607-09
(forfeiture & seizure by CBP).

Proceeds

Yes.
• 18 U.S.C. § 981(d) (permitting
administrative forfeiture of proceeds
forfeitable civilly).
• 18 U.S.C. § 2323(a)(2) (same).

Prosecuting Intellectual Property Crimes

Civil
Infringing Items

Yes.
• 17 U.S.C. §§ 602-603.
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. §§ 981(a)(1)(C) & 2323(a)
(1)(C).

Criminal
Infringing Items

Yes (mandatory) .
• 17 U.S.C. §§ 602-603.
• 18 U.S.C. § 2323(b)(1) (mandating
criminal forfeiture of property
forfeitable civilly).
• 28 U.S.C. § 2461(c) (permitting
criminal forfeiture of property
forfeitable civilly).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 981(a)(1)(C).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Digital Millennium Copyright Act
Administrative

No.

Civil

No.

Criminal

No.

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363

Economic Espionage Act (Trade Secret Theft)
Administrative
Contraband

Yes.
• 18 U.S.C. § 2323(a)(2).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2).

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(2).

Civil
Contraband

Yes.
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(1)(C).

Criminal
Contraband

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Counterfeit/Illicit Labels, Documentation, and Packaging for Copyrighted Works
Administrative

364

Counterfeit/Infringing Items

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. §§ 1595a, 1607-09.

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. §§ 1595a, 1607-09.

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(2).

Prosecuting Intellectual Property Crimes

Civil
Counterfeit/Infringing Items

Yes.
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. § 981(a)(1)(C).
• 18 U.S.C. § 2323(a)(1)(B).

Criminal
Counterfeit/Infringing Items

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Unauthorized Fixations of Live Musical Performances (“Bootlegging”)
Administrative
Unauthorized Recordings

Yes.
• 18 U.S.C. § 2319A(c).
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. § 1595a, 1607-09.

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. § 1595a, 1607-09.

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(2).

Civil
Unauthorized Recordings

Yes.
• 18 U.S.C. § 2319A(c).
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. § 981(a)(1)(C).
• 18 U.S.C. § 2323(a)(1)(C).

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365

Criminal
Unauthorized Recordings

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Unauthorized Recording of Motion Pictures (“Camcording”)
Administrative
Unauthorized Recordings

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. § 1595a, 1607-09.

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. § 1595a, 1607-09.

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(2).

Civil
Unauthorized Recordings

Yes.
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. § 2323(a)(1)(C).

Criminal

366

Unauthorized Recordings

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Prosecuting Intellectual Property Crimes

Goods, Services, Labels, Documentation, and Packaging with Counterfeit Marks
Administrative
Counterfeit Items

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. § 1526(e).
• 19 U.S.C. §§ 1595a & 1607-09.

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(2).
• 19 U.S.C. §§ 1595a & 1607-09.

Proceeds

Yes.
• 18 U.S.C. § 981(d).
• 18 U.S.C. § 2323(a)(2).

Civil
Contraband

Yes.
• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property

Yes.
• 18 U.S.C. § 2323(a)(1)(B).

Proceeds

Yes.
• 18 U.S.C. § 981(a)(1)(C).
• 18 U.S.C. § 2323(a)(1)(C).

Criminal
Contraband

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Facilitating Property

Yes (mandatory).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

Proceeds

Yes (mandatory).
• 18 U.S.C. § 981(a)(1)(C).
• 18 U.S.C. § 2323(b)(1).
• 28 U.S.C. § 2461(c).

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367

3. Choosing a Forfeiture Procedure
Although the prosecutor may commence parallel civil and criminal
forfeiture cases to keep all avenues of forfeiture open, various factors may affect
which procedure is best to pursue:
• Substitute assets. In criminal proceedings, the court can enter a money
judgment against the defendant for the property’s value or can order
the forfeiture of substitute assets if the property has been dissipated or
cannot be found.
• Burden of proof. In civil proceedings, the government need only prove
that a crime was committed and that the property derived from or
facilitated the crime by a preponderance of the evidence. In criminal
cases, the government must prove beyond a reasonable doubt that a
crime was committed and that the defendant committed the crime,
although the nexus between the property and the offense need be
proved only by a preponderance of the evidence.
• Criminal conviction as a prerequisite. Civil forfeiture does not require
a conviction. This is especially important if the government wants to
forfeit the property of fugitives or defendants who have died, or if
the government can prove that the property was involved in a crime
but cannot prove the wrongdoer’s specific identity. Moreover, civil
proceedings may be brought against any property derived from either
a specific offense or from an illegal course of conduct, and therefore is
not limited to property involved in the offense(s) of conviction.
• Ownership of property. Criminal forfeiture reaches property only if it
is owned by the defendant, or was at the time of the offense giving rise
to the forfeiture. Civil forfeiture should be considered if the prosecutor
seeks to forfeit proceeds or facilitation property that the defendant
does not own.
• Discovery and disclosure obligations. Civil forfeiture, governed by
civil discovery rules, can result in early or unwanted disclosure of
information through traditional civil discovery mechanisms such as
interrogatories and depositions, and it is subject to stringent deadlines.
• Attorneys’ fees. If the government brings an unsuccessful action for
civil forfeiture, it may be liable for the owner’s attorneys’ fees.
• Efficiency. Administrative forfeiture is preferred whenever available—
generally, when no one is contesting the forfeiture—as it can dispose of
certain forfeiture matters quickly in a non-judicial setting.
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Prosecuting Intellectual Property Crimes

4. Civil Forfeiture in Intellectual Property Matters
With the passage of the PRO-IP Act on October 13, 2008, civil forfeiture
is now available for all intellectual property offenses except violations of the
DMCA. See 18 U.S.C. § 2323(a). Again, the government need only prove that
the crime was committed; it need not convict a specific defendant of the crime.
a. Proceeds
The government can seek civil forfeiture of the proceeds of all IP offenses
except violations of the DMCA. See 18 U.S.C. § 2323(a)(1)(C). In addition,
the Civil Asset Forfeiture Reform Act of 2000 (CAFRA) amendments to
18 U.S.C. § 981—a general civil forfeiture statute—permit civil forfeiture
of the proceeds of certain IP offenses. The CAFRA amendments permit the
government to seek civil forfeiture of “[a]ny property, real or personal, which
constitutes or is derived from proceeds traceable to,” among other things,
any offense defined as a specified unlawful activity in the money laundering
provisions at 18 U.S.C. § 1956(c)(7). 18 U.S.C. § 981(a)(1)(C). Specified
unlawful activities include criminal copyright infringement and trademark
counterfeiting, 18 U.S.C. § 1956(c)(7)(D) (citing 18 U.S.C. §§ 2319, 2320),
as well as any offense listed as racketeering activity in 18 U.S.C. § 1961(1).
Section 1961, in turn, lists not only §§ 2319 and 2320 violations, but also
violations of 18 U.S.C. § 2318 (counterfeit labels, documentation, and
packaging for copyrighted works) and § 2319A (bootleg musical recordings).
b. Infringing Items, Other Contraband, and Facilitating Property
Civil forfeiture of infringing and other contraband items, as well as
facilitating property, is available for all IP offenses except violations of the
DMCA. See 18 U.S.C. §§ 2323(a)(1)(A), (B).
In addition, there are special civil forfeiture provisions applicable to
unauthorized fixations imported into the United States, see 18 U.S.C. § 2319A
(unauthorized fixations of live musical performances), and to infringing copies
imported to or exported from the United States. See 17 U.S.C. §§ 602-603.
c. Innocent Owner Defense
In most civil forfeiture actions, the innocent owner defense allows an
owner to challenge the forfeiture on the ground that he was unaware that the
property was being used for an illegal purpose, or took all reasonable steps
under the circumstances to stop it. See United States v. 2001 Honda Accord EX,
VIII. Penalties, Restitution, and Forfeiture

369

245 F. Supp. 2d 602 (M.D. Pa. 2003) (holding that CAFRA preserved the rule
that the burden of proof shifts to the claimant to establish the innocent owner
defense); United States v. 2526 Faxon Avenue, 145 F. Supp. 2d 942 (W.D. Tenn.
2001) (holding that CAFRA requires the claimant to prove the affirmative
innocent owner defense by a preponderance of the evidence). There are some
exceptions, however, most notably for importation offenses, and therefore
prosecutors may wish to consult with the Department’s Asset Forfeiture and
Money Laundering Section at (202) 514-1263 if an innocent owner is likely
to submit a claim.
d. Victims’ Ability to Forfeit Property
Note also that some IP rights holders may obtain certain civil seizures
that can complicate the government’s criminal prosecution, not to mention
its forfeiture proceedings. Mark-holders have an ex parte remedy for seizing
infringing products and manufacturing equipment. 15 U.S.C. § 1116(d).
Mark-holders may also petition the court for seizure orders during a civil action
against an infringer under 15 U.S.C. § 1114. Authority for an ex parte seizure
order is provided at 15 U.S.C. § 1116(d)(1)(A). Mark-holders who seek such
an order must give reasonable notice to the United States Attorney for the
judicial district in which the order is sought, after which the United States
Attorney “may participate in the proceedings arising under such application if
such proceedings may affect evidence of an offense against the United States.”
15 U.S.C. § 1116(d)(2). The mark-holder’s application may be denied “if the
court determines that the public interest in a potential prosecution so requires.”
Id. If the mark-holder’s application is granted, then the seizure must be made
by a federal, state, or local law enforcement officer. See 15 U.S.C. § 1116(d)(9).
Similar ex parte seizure remedies are available to rights holders in copyright
and counterfeit or illicit labels cases. See 17 U.S.C. § 503; 18 U.S.C. § 2318(e).
Prosecutors may need to participate in these civil proceedings in order to
preserve evidence relevant to an incipient or ongoing criminal case; to contest
the issuance of an order; to preserve an ongoing investigation; or to inform the
mark-holder of his ability to initiate a parallel civil case to seize, forfeit, and
destroy equipment used to manufacture the counterfeit trademark goods.
5. Criminal Forfeiture in IP Matters
As noted above, criminal forfeiture is an in personam action, and thus is
available only once a defendant has been convicted, and then it is limited to
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property belonging to the defendant. See United States v. Totaro, 345 F.3d 989,
995 (8th Cir. 2003) (holding that criminal forfeiture is in personam, because if
it allowed the forfeiture of a third party’s interest, the forfeiture would become
an in rem action and the third party could contest the forfeiture on more than
ownership grounds); United States v. O’Dell, 247 F.3d 655, 680 (6th Cir. 2001)
(recognizing that criminal forfeiture “entitles the government to forfeiture of a
convicted defendant’s interests and nothing more”) (citation omitted); United
States v. Gilbert, 244 F.3d 888, 919 (11th Cir. 2001) (“Because it seeks to
penalize the defendant for his illegal activities, in personam forfeiture reaches
only that property, or portion thereof, owned by the defendant.”) (citation
omitted), superseded on other grounds as recognized in United States v. Marion,
562 F.3d 1330, 1341 (11th Cir. 2009). The relation back doctrine, however,
codified at 21 U.S.C. §§ 853(c) and 853(n)(6), provides that the government’s
interest in forfeitable property vests at the time of the offense giving rise to the
forfeiture, and that property transferred to a third party after that time may be
forfeited.
Even though criminal forfeiture is executed after conviction, the government
should plan for criminal forfeiture during the investigation and at indictment.
Pre-indictment seizure warrants can be used to seize infringing items (whether
or not they are the property of a target). Moreover, the indictment should
include separate forfeiture charges that identify any property that is forfeitable
pursuant to the charged offenses. For forfeiture language to include in an
indictment, prosecutors should consult the forfeiture expert in their office or
the Criminal Division’s Asset Forfeiture and Money Laundering Section at
(202) 514-1263.
Criminal forfeiture is available for all IP offenses except violations of the
DMCA. See 18 U.S.C. § 2323(b).
a. Proceeds
Generally, the government can obtain criminal forfeiture of proceeds from
IP offenses whenever those proceeds are civilly forfeitable. See 18 U.S.C. §
2323(b)(1); 28 U.S.C. § 2461(c).
Independently, where a defendant has engaged in a monetary transaction
involving the proceeds of an intellectual property offense, “knowing that the
property involved in a financial transaction represents the proceeds of some
form of unlawful activity”—regardless of whether the crime is listed in 18
U.S.C. § 1956(c)(7)—the defendant may also be charged, and the proceeds
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subject to forfeiture, under the money laundering statute directly. See United
States. v. Turner, 400 F.3d 491 (7th Cir. 2005) (holding that the defendant
need not know the actual source of the money, but only that it came from
“some illegal activity”); see also United States v. Khalil, No. CR. A. 95-577-01,
1999 WL 455698 (E.D. Pa. June 30, 1999) (forfeiture involving counterfeiting
popular music).
b. Infringing Items, Other Contraband, and Facilitating Property
Similarly, criminal forfeiture of contraband from, and facilitating property
for, IP offenses is available whenever those materials are civilly forfeitable. See
18 U.S.C. § 2323(b)(1).
6. Domain Name Forfeiture
Increasingly, IP crimes are being perpetrated by website operators who are
either unknown or outside the criminal jurisdiction of the United States. Their
domain names, however, which point visitors to the sites, are often controlled
by registrars and registries inside the United States. While it may be impractical
or impossible to prosecute the operators themselves, forfeiture of the domain
names may well be appropriate if they are facilitating the sale of infringing or
counterfeit goods.
Domain name forfeiture can be a high-visibility action with an important
deterrent effect. It is most suitable, however, when a website is being used
solely or largely for illegal activities. One must consult with the Criminal
Division’s Asset Forfeiture and Money Laundering Section at (202) 514-1263
if the domain name is used for a combination of legal and illegal activities,
such as constitutionally protected speech mixed with illegal transactions, or
the domain name is used to run an ongoing business that is not engaging in
predominately illegal activity.
The forfeiture statutes define “property” to include intangible property,
such as licenses and rights. See 18 U.S.C. § 981(a)(1)(E); 21 U.S.C. § 853(b)
(2); United States v. Dicter, 198 F.3d 1284 (11th Cir. 1999) (medical license).
Registrants have intangible rights in their domain names. Kremen v. Cohen,
337 F.3d 1024, 1029 (9th Cir. 2003). Those rights could be characterized as
either property rights or contract rights. See, e.g., Dorer v. Arel, 60 F. Supp. 2d
558, 561 (E.D. Va. 1999).
To forfeit a domain name, it is necessary to prove a nexus between the
domain and the criminal offense. See 18 U.S.C. § 981(a); 21 U.S.C. § 853(a).
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Often, the easiest way to establish this nexus is to argue that the domain
facilitates the offense.
In civil forfeiture, to prove that a domain name facilitates the offense, it is
necessary to show a “substantial connection” between the domain name and
the offense. 18 U.S.C. § 981(c)(3) (civil forfeiture). A substantial connection
or nexus can be shown by demonstrating that the domain name points to a
computer that, in turn, is used in the offense. For example:
• the domain name points to a web server which hosts an online pharmacy
selling counterfeit drugs; or
• the domain name points to a file server or cyber locker that offers
pirated movies, music, or software for download.
a. The Steps in Domain Name Forfeiture
Below is a brief summary of the domain name forfeiture process. For more
specific direction, and to obtain copies of sample documents, please contact
CCIPS at (202) 514-1026 or the Criminal Division’s Asset Forfeiture and
Money Laundering Section at (202) 514-1263.
i. Seize (and Restrain) the Domain Name
A domain name is restrained by ordering the registrar not to permit the
registrant to move the domain name to another registrar. This prevents the
registrant from moving the domain name to a registrar outside the United
States. A domain name is seized by placing it in a state where it no longer points
to any server. Any email sent to the domain will bounce; any web browers
trying to download a page from the domain will get a “host not found” error.
For IP crimes, the simplest approach is to seize and restrain the domain
name civilly, using a seizure warrant issued under 18 U.S.C. § 981(b), which
is made applicable by 18 U.S.C. § 2323(a)(2) to all IP crimes except DMCA
violations. The investigative agency applies ex parte for a warrant. The warrant
is granted if “there is probable cause to believe that the property is subject to
forfeiture.” 18 U.S.C. § 981(b)(2)(B).
There are two criminal forfeiture methods of seizure for domain names,
both of which are made applicable by 18 U.S.C. § 2323(b)(2)(A) to all IP
crimes except DMCA violations. The first method is to obtain a protective
order under 21 U.S.C. § 853(e)(1). This is simplest to do right after an
indictment, but it can also be done before an indictment. These orders have
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nationwide scope. 21 U.S.C. § 853(l). Protective orders, however, do not allow
one to “seize” the domain name by turning it off.
The second and preferred method, which does permit turning off the
domain name, is to obtain a “warrant of seizure” issued under 21 U.S.C. §
853(f ). The standard of proof is “probable cause to believe that the property to
be seized would, in the event of a conviction, be subject to forfeiture,” and that
a protective order will not be sufficient. Id. These warrants have nationwide
scope. 21 U.S.C. § 853(l). To establish that a protective order is not sufficient,
one must establish the need to turn off the domain name now. For most sites
peddling infringing or counterfeit goods, this should be fairly straightforward—
unless the domain name is turned off, customers will continue to purchase
unsafe or substandard goods, and rights holders will continue to suffer lost
sales.
ii. Forfeit the Domain Name
When a domain name is forfeited, it becomes property of the United States.
The former registrant loses all rights to, and control over, the domain name.
If this is a criminal seizure (i.e., the defendant owns the domain name), the
indictment or information must identify the domain name as property to be
forfeited. Fed. R. Crim. P. 32.2(a). One should include the domain names in
the description of property to be forfeited, for example: “any personal property
… including, but not limited to, the following Internet domain names:
illegaldrugs.com.” One should identify only the second-level domain names
and should not include the prefixes “www” or “http” or refer to the domain
names as “websites.”
iii. Forfeiture as Part of a Plea Agreement
Domain name forfeiture can and ought to be included in a plea agreement,
especially if the defendant was using the associated website to market counterfeit
and/or infringing goods. If there is a parallel civil forfeiture proceeding, the
defendant can agree not to contest forfeiture there. Otherwise, the defendant
should consent in writing—the paperwork is ordinarily available from the
registrar—to the voluntary transfer of the domain name to the United States.
iv. The Government’s Use of the Domain Name
Once the United States successfully seizes a domain name, it retains
possession until the registration period expires. Many domain names are
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registered only for a year or two at a time. Once that period expires, the seizing
agency would have to renew the registration or the name would go back on the
open market.
The seizing agency may choose to post its own message or banner at the
domain informing visitors that the name was seized because it was facilitating
the sale of counterfeit or infringing goods in violation of federal law. The
agency can then monitor the number of visitors who view the banner in order
to measure its effect.
7. Interbank Account Seizures of Foreign Bank Funds
In 2001, Congress enacted 18 U.S.C. § 981(k) as part of the USA Patriot
Act. See Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 10756, § 319, 115 Stat. 272, 311-12 (2001). This civil forfeiture provision allows
the United States to recover criminal proceeds that have been deposited in a
foreign bank account by filing a civil forfeiture action—not against the funds
in the foreign account itself, but against the funds that the foreign bank has on
deposit in the United States at a domestic financial institution. It is not necessary
for the Government to establish that the seized funds are directly traceable to
the funds that were deposited into the foreign financial institution. Only the
person who owned the forfeitable funds at the time they were deposited into
the foreign bank has standing to contest the forfeiture. The foreign bank does
not have standing to object to the forfeiture action.
Though the provision was aimed originally at terrorism, it can be useful in
IP investigations. Used judiciously, it facilitates the seizure of proceeds from the
sale of counterfeit and infringing goods by website operators who are outside
United States criminal jurisdiction, and/or in countries with no extradition
treaty with the U.S.—yet depend primarily on U.S. customers whose payments
must pass through a domestic financial institution before moving into foreign
accounts.
The Criminal Division’s Asset Forfeiture and Money Laundering Section
must approve the seizure of funds under § 981(k).

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IX.
Charging Decisions
A.

Introduction

In determining whether to charge an intellectual property crime, federal
prosecutors should generally consider the same factors that are weighed with
respect to any other federal offense. The principal resource is Chapter 9-27.000
of the United States Attorneys’ Manual (USAM) (“Principles of Federal
Prosecution”). Ordinarily, the prosecutor “should commence or recommend
Federal prosecution if he/she believes that the person’s conduct constitutes a
Federal offense and that the admissible evidence will probably be sufficient to
obtain and sustain a conviction.” USAM 9-27.220.
This directive is not absolute. Even a provable case may be declined in three
situations: when prosecution would serve no substantial federal interest; when
the person is subject to effective prosecution in another jurisdiction; or when
there exists an adequate non-criminal alternative to prosecution. Id. Broken
down further, the relevant considerations include:
• The federal interest in intellectual property crimes.
• Federal law enforcement priorities.
• The nature and seriousness of the offense.
• The deterrent effect of prosecution.
• The individual’s culpability in connection with the offense.
• The individual’s criminal history.
• The individual’s willingness to cooperate in the investigation or
prosecution of others.
• The probable sentence and other consequences of conviction.
• Whether the person is subject to prosecution in another jurisdiction.
• The adequacy of alternative non-criminal remedies.
• Special considerations for deciding whether to charge corporations.
This chapter briefly discusses how some of these factors apply specifically
to intellectual property crimes.
As discussed in Chapter IV, there are additional requirements and factors
that apply in the prosecution of economic espionage cases under 18 U.S.C.
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§ 1831. The Assistant Attorney General for the National Security Division must
approve the filing of any charges under § 1831. USAM 9-2.400, 9-59.100.
Additionally, USAM 9-59.110 provides that “[p]rosecutors are strongly urged
to consult with the Computer Crime and Intellectual Property Section before
initiating prosecutions under 18 U.S.C. § 1832.” In economic espionage
and trade secret cases, USAM 9-59.100 highlights the following factors in
determining whether to commence prosecution:
a) the scope of the criminal activity, including evidence of involvement by
a foreign government, foreign agent or foreign instrumentality;
b) the degree of economic injury to the trade secret owner;
c) the type of trade secret misappropriated;
d) the effectiveness of available civil remedies; and
e) the potential deterrent value of the prosecution.

B.

The Federal Interest in Intellectual
Property Crimes

In determining whether a particular prosecution would serve a substantial
federal interest, the prosecutor should weigh all relevant factors. USAM
9-27.230. Several factors that have specific application to intellectual property
crimes are discussed below.
1. Federal Law Enforcement Priorities
“[F]rom time to time the Department establishes national investigative
and prosecutorial priorities. These priorities are designed to focus Federal law
enforcement efforts on those matters within the Federal jurisdiction that are
most deserving of Federal attention and are most likely to be handled effectively
at the Federal level.” USAM 9-27.230(B)(1) (comment).
Because of the importance of intellectual property to the national economy
and the scale of intellectual property theft, intellectual property crime continues
to be a law enforcement priority. Intellectual property theft worldwide costs
American companies billions per year. The Justice Department has therefore
made the enforcement of intellectual property laws a high priority. Through its
Intellectual Property Task Force, the Department has identified four categories
of IP investigations and prosecutions that deserve special attention: offenses
that involve (1) health and safety; (2) links to organized criminal networks; (3)
large scale commercial counterfeiting and piracy, particularly occurring online;
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and (4) trade secret theft or economic espionage. See U.S. Dep’t of Justice, PRO
IP Act Annual Report FY2011, at 16 (2011).
To meet these and other priorities, the Department has trained a national
network of specialized prosecutors designated “Computer Hacking and
Intellectual Property” (CHIP) coordinators, at least one of whom is located in
each of the nation’s ninety-four United States Attorneys’ Offices, with greater
numbers in the twenty-five CHIP units located in districts that experience
some of the highest concentrations of computer and intellectual property
crimes. Under this program, there are more than 260 CHIP prosecutors
around the country. At the national and international level, intellectual
property prosecutions are coordinated by the Department’s Computer Crime
and Intellectual Property Section (CCIPS) in Washington, D.C.
Notably, and in part to support these efforts, the Prioritizing Resources and
Organization for Intellectual Property (PRO-IP) Act of 2008 increased both
the penalties for intellectual property offenses and the resources available to law
enforcement for the investigation and prosecution of IP crimes. Among other
things, the PRO-IP Act: (i) increased the maximum penalties for trademark
counterfeiting violations resulting in serious bodily injury or death; (ii) made
restitution and criminal forfeiture mandatory for virtually all intellectual
property offenses; (iii) established a federal grant program to provide state
and local law enforcement agencies with funds for intellectual property crime
training, prevention, enforcement and prosecution; (iv) authorized and later
appropriated funding for the assignment of 51 Federal Bureau of Investigation
(“FBI”) special agents specifically to investigate intellectual property crimes
as well as 15 additional CHIP positions; and (v) required the submission of
annual reports to Congress from both the Attorney General and the Director
of the FBI on their progress in implementing the objectives of the PRO-IP Act.
Prioritizing Resources and Organization for Intellectual Property (PRO-IP)
Act, Pub. L. No. 110-403, §§ 205, 206, 401, 402, 404, 122 Stat. 4256, 426164, 4271-72, 4274-4277 (2008).
CCIPS can help evaluate whether a particular intellectual property crime
poses a matter of federal priority. CCIPS can be reached at (202) 514-1026.
2. The Nature and Seriousness of the Offense
As with other offenses, intellectual property crimes vary in their nature and
seriousness. It is therefore essential to consider each case on its own facts.
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The offense’s nature and seriousness are indicated by the usual factors,
with special importance placed on threats to health or safety, see U.S.S.G.
§ 2B5.3(b)(5); the volume of infringement as measured by the amount of
revenue and profit, see § 2B5.3(b)(1), cmt. n.2; the involvement of organized
crime, see § 2B5.3 cmt. n.4(B); and whether substantial harm was done to the
reputation of the rights holder, see id. cmt. n.4(A).
Other considerations that are more particular to intellectual property
offenses include the following:
• Federal criminal prosecution is most appropriate in the most egregious
cases. The criminal intellectual property statutes punish only a subset
of the conduct that is punishable under civil intellectual property laws.
Even then, the government must prove its case beyond a reasonable
doubt, including a high state of mens rea.
• Limited federal resources should not be diverted to prosecute an
inconsequential case or a case in which the violation is only technical.
Even some branches of civil intellectual property law recognize the
maxim, “de minimis non curat lex.”
• Federal prosecution is most appropriate when the questions of
intellectual property law are most settled. However, federal prosecutors
should not hesitate to apply settled intellectual property concepts in
innovative ways to new schemes and new technology.
• Victims have a broad range of civil remedies that include restitution,
damages, punitive or quasi-punitive damages, injunctions, court
costs, and attorneys’ fees. See Section D. of this Chapter.
• The more strongly an intellectual property owner acts to protect its
rights, the stronger the interest in prosecution. Id.
• Many intellectual property offenses include multiple victims: not
only the owners of the intellectual property that was infringed, but
also customers who were defrauded. Both classes of victim deserve
protection, and one class’s lack of interest in prosecution should not
countermand prosecution when the other class’s interest is strong.
• The sources or manufacturers of infringing goods and services are
generally more worthy of prosecution than distributors. Cf. U.S.S.G.
§ 2B5.3(b)(3) (adjusting offense level for infringement offenses
involving the manufacturing, uploading or smuggling of infringing
items by 2 levels, with a minimum offense level of 12).

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•

Counterfeit goods or services that endanger the public’s health or
safety deserve the highest consideration for prosecution. See U.S.
Dep’t of Justice, PRO IP Act Annual Report FY2011, at 16 (2011);
cf. U.S.S.G. § 2B5.3(b)(5) (adjusting offense level for infringement
offenses involving “conscious or reckless risk of death or serious bodily
injury [or] possession of a dangerous weapon” by 2 levels, with a
minimum offense level of 14).

3. The Deterrent Effect of Prosecution
Some infringers are undeterred by civil liability. They treat civil remedies as
a cost of doing business and continue their infringement after civil sanctions,
albeit with different products or under a different corporate guise. Criminal
prosecution can better deter a persistent violator from repeating his or her
crime.
Criminal prosecution may also further general deterrence. Individuals
may commit intellectual property crimes not only because some are relatively
easy to commit, such as copying music, but also because they do not fear
prosecution. But one person’s relatively small-scale violations, if permitted to
take place openly and notoriously, can lead others to believe that such conduct
is tolerated. While some counterfeiting or piracy offenses may not result in
provable direct loss to a victim, the widespread commission of such crimes can
devastate the value of intellectual property rights in general.
Criminal prosecution plays an important role in establishing the public’s
understanding of what conduct is acceptable and what is not. Vigorous
prosecution changes the public’s calculus. Put simply, more individuals will
be deterred from committing intellectual property offenses if they believe they
will be investigated and prosecuted.
4. The Individual’s History of Criminal Offenses and
Civil Intellectual Property Violations
Repeat criminal offenders are especially worthy of prosecution. See USAM
9-27.230(B)(5) (comment). The repeat-offender provisions in the intellectual
property crime statutes, e.g., 18 U.S.C. § 2320(b)(1)(B), and the United States
Sentencing Guidelines ensure that repeat offenders receive stiffer sentences.
In addition to the defendant’s criminal history, it is also appropriate to
consider his or her history of civil intellectual property violations. When
infringers consider civil penalties merely a cost of doing business, criminal
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enforcement is particularly appropriate. Sources for determining the
defendant’s history of civil intellectual property offenses include civil litigation
records (which are often searchable online), the victim’s legal department and
private investigators, and any state consumer protection agencies to which
consumers might have complained. Another relevant consideration concerns
any infringement or misappropriation conduct following the issuance of cease
and desist letters or injunctive orders.
5. The Individual’s Willingness to Cooperate
in the Investigation or Prosecution of Others
As discussed in Section B.2. of this Chapter, the sources of counterfeit
or pirated goods or services are especially worthy of prosecution. Special
consideration should be given to targets who are willing to cooperate in an
investigation that leads to a source’s prosecution.
This includes the prosecution of foreign sources. In recent years, the
Department of Justice has worked extensively with foreign law enforcement
agencies to investigate and prosecute foreign violators, both by extraditing
foreign violators to the United States and by coordinating searches and
prosecutions simultaneously in the United States and abroad. CCIPS has
regular contact with foreign prosecutors and law enforcement agencies with an
interest in intellectual property crime. Therefore, for assistance in investigating
or prosecuting offenses with an international dimension, contact CCIPS at
(202) 514-1026.

C.

Whether the Person Is Subject to Prosecution in
Another Jurisdiction

One situation in which a prosecutor may decline prosecution despite
having a provable case occurs when the putative defendant is subject to
effective prosecution in another jurisdiction. USAM 9-27.240. Relevant to this
inquiry is the strength of the other jurisdiction’s interest in prosecution; the
other jurisdiction’s ability and willingness to prosecute effectively; the probable
sentence or other consequences of conviction in the other jurisdiction; and any
other pertinent factors. Id.
The primary question will often not be whether the case could be prosecuted
by another U.S. Attorney’s Office, but rather whether it could be prosecuted by
state, local, or foreign authorities. USAM 9-27.240(B) (comment). State, local,
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or foreign law enforcement may or may not be a viable alternative to federal
prosecution. Federal intellectual property laws generally do not preempt state
and local intellectual property laws. For example, in trade secret and economic
espionage cases, Congress expressly anticipated that other appropriate remedies
may be considered. The Economic Espionage Act explicitly provides that the
statute does not “preempt or displace any other remedies, whether civil or
criminal, provided by United States Federal, State, commonwealth, possession,
or territory law for the misappropriation of a trade secret.” 18 U.S.C. § 1838.
The only relevant area of intellectual property in which there is broad
federal preemption is copyright infringement, but even in that area states have
passed some creative laws that indirectly criminalize conduct involving some
pirated works. Compare 17 U.S.C. § 301 (copyright preemption); R.W. Beck,
Inc. v. E3 Consulting, LLC, 577 F.3d 1133, 1148-49 (10th Cir. 2009) (holding
Copyright Act preempted state common law claims for unfair competition and
unjust enrichment); Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 121213 (9th Cir. 1998) (holding state law unfair competition claim preempted
where complaint expressly based the claim on rights granted by the Copyright
Act); Kregos v. Associated Press, 3 F.3d 656, 666 (2d Cir. 1993) (holding state
law unfair competition and misappropriation claims preempted when based
solely on the copying of protected expression in forms); Wnet v. Aereo, No.
12 Civ. 1543(AJN), 2012 WL 1850911, at *11 (S.D.N.Y. May 18, 2012)
(holding state law unfair competition claim preempted by Copyright Act);
People v. Williams, 920 N.E.2d 446, 458 (Ill. 2009) (holding Illinois antipiracy
provision preempted by Copyright Act); and State v. Perry, 697 N.E.2d 624
(Ohio 1998) (holding that federal copyright law preempted prosecution in
case involving defendant’s use of computer software on his bulletin board);
with Anderson v. Nidorf, 26 F.3d 100, 102 (9th Cir. 1994) (holding California
anti-piracy statute not preempted by federal copyright law in illegal sound
recording case); Briggs v. State, 638 S.E.2d 292, 295 (Ga. 2006) (holding
Georgia statute criminalizing the sale of recordings without a label identifying
the “transferor” not preempted by federal copyright law); State v. Awawdeh,
864 P.2d 965, 968 (Wash. Ct. App. 1994) (holding Washington statute not
preempted by federal copyright law in illegal sound recording case); and People
v. Borriello, 588 N.Y.S.2d 991, 996 (N.Y. App. Div. 1992) (holding New York
statute not preempted by Copyright Revision Act in illegal video recording
case).

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D.

The Adequacy of Alternative Non-Criminal
Remedies

Department of Justice policy allows a prosecutor to decline criminal
prosecution in a situation that could be adequately addressed by non-criminal
remedies. USAM 9-27.220(A)(3). Almost every federal intellectual property
crime has an analogue in civil law—be it state or federal—and those laws
generally offer victims generous relief, such as injunctions, restitution, damages,
punitive and quasi-punitive damages, court costs, attorneys’ fees, and even ex
parte seizure of a defendant’s infringing products. See 15 U.S.C. §§ 1114,
1116-1117 (trademark); 17 U.S.C. §§ 501-505 (copyright). Imported and
exported infringing merchandise can also be subject to administrative forfeiture
and fines imposed by United States Customs and Border Protection. See, e.g.,
17 U.S.C. §§ 602, 603(c) (copyright), 19 U.S.C. § 1526(e)-(f ) (trademark).
The availability and adequacy of these remedies should be carefully considered
when evaluating an intellectual property case.
The prosecutor should also consider whether existing civil remedies have
been or are likely to deter a particular defendant. For those undeterred by civil
suits and remedies, criminal prosecution may be more appropriate. When the
defendant has violated an earlier civil order, however, civil or criminal penalties
for contempt of court may be an acceptable alternative to prosecution for
criminal intellectual property violations.
Finally, when the violator’s conduct is persistent, unsafe, profit-oriented,
fraudulent, or physically invasive, civil remedies may not fully capture the
wrongfulness of the defendant’s conduct. In such cases, criminal prosecution
may be preferred.
Although the government may prosecute even if the victim has not
exhausted its civil and administrative remedies, the government should consider
the victim’s pursuit of alternative remedies. The putative defendant’s conduct
in response should also be examined.

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E.

Special Considerations in Deciding Whether
to Charge Corporations and Other Business
Organizations

Corporations and other business organizations are often used to commit
intellectual property crimes. The decision whether to charge a business
organization involves numerous considerations. Department of Justice policy
on such charging decisions is generally set forth in the Principles of Federal
Prosecution of Business Organizations. USAM 9-28.000. This guidance
applies to intellectual property crimes in the same manner as to other crimes.
In deciding whether prosecution of a business organization is appropriate,
relevant factors include:
•

•
•
•
•
•

•

The nature and seriousness of the offense, including the risk of harm
to the public, and applicable policies and priorities, if any, governing
the prosecution of corporations for particular categories of crime (see
USAM 9-28.400);
The pervasiveness of wrongdoing within the corporation, including
the complicity in, or the condoning of, the wrongdoing by corporate
management (see USAM 9-28.500);
The corporation’s history of similar misconduct, including prior
criminal, civil, and regulatory enforcement actions against it (see
USAM 9-28.600);
The corporation’s timely and voluntary disclosure of wrongdoing and
its willingness to cooperate in the investigation of its agents (see USAM
9-28.700);
The existence and effectiveness of the corporation’s pre-existing
compliance program (see USAM 9-28.800);
The corporation’s remedial actions, including any efforts to implement
an effective corporate compliance program or to improve an existing
one, to replace responsible management, to discipline or terminate
wrongdoers, to pay restitution, and to cooperate with the relevant
government agencies (see USAM 9-28.900);
Collateral consequences, including whether there is disproportionate
harm to shareholders, pension holders, employees, and others not
proven personally culpable, as well as impact on the public arising from
the prosecution (see USAM 9-28.1000);

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•
•

386

The adequacy of the prosecution of individuals responsible for the
corporation’s malfeasance (see USAM 9-28.300); and
The adequacy of remedies such as civil or regulatory enforcement
actions (see USAM 9-28.1100).

Prosecuting Intellectual Property Crimes

X.
Victims of Intellectual
Property Crimes—
Ethics and Obligations
But justice, though due to the accused, is due to the accuser
also.... We are to keep the balance true.
Justice Benjamin Cardozo, Snyder v. Massachusetts, 291 U.S. 97, 122 (1934).
Many victims of intellectual property (“IP”) offenses are atypical, in that
they often have substantial resources to protect their rights by investigating,
pursuing, and deterring infringers independent of law enforcement. For
instance, businesses often pool their resources in industry groups that undertake
enforcement actions on their behalf. See Appendix G (listing trademark and
copyright organization contacts). These groups sometimes investigate violations
independently and refer the results to law enforcement with a request to bring
charges. They may even seek to contribute resources to law enforcement
agencies or multi-agency task forces organized to focus on IP offenses. Whether
an IP victim can enforce its rights through civil or administrative processes may
influence whether criminal prosecution is warranted (see Chapter IX of this
Manual), and if so, what charges and strategy are appropriate. The fact that IP
rights holders sometimes can address IP crime on their own does not, however,
diminish their rights under federal law.
Although rights holders are often the primary victims in IP offenses,
consumers are victimized also. Consumers may be defrauded into buying
counterfeits that are second-rate or, worse, unsafe, while consumers who
purchase authentic goods end up paying higher prices to offset industry losses
caused by counterfeiting and piracy.

A.

Victims’ Rights

Beginning with the passage of the Victim and Witness Protection Act of
1982, Pub. L. No. 97-291, 96 Stat. 1248 (1982), Congress has enacted numerous
statutes that protect victims’ rights during the investigation, prosecution, and
387

sentencing stages of criminal proceedings. Most recently, Congress revised and
recodified victims’ rights laws in the Justice for All Act of 2004, Pub. L. No.
108-405, 118 Stat. 2260 (2004). The Department issued revised guidance for
implementing the Justice for All Act in the Attorney General Guidelines for
Victim and Witness Assistance (2012 ed.) (“AG Guidelines”), available at http://
www.justice.gov/olp/pdf/ag_guidelines2012.pdf.
Generally, the Justice for All Act requires Department of Justice employees
to make their best efforts to notify victims of the following rights:
1. The right to be reasonably protected from the accused
2. The right to reasonable, accurate, and timely notice of any public
court proceeding, or any parole proceeding, involving the crime or
any release or escape of the accused
3. The right not to be excluded from any such public court proceeding,
unless the court, after receiving clear and convincing evidence,
determines that testimony by the victim would be materially
altered if the victim heard other testimony at that proceeding
4. The right to be reasonably heard at any public proceeding in the
district court involving release, plea, sentencing, or any parole
proceeding
5. The reasonable right to confer with the attorney for the government
in the case
6. The right to full and timely restitution as provided in law
7. The right to legal proceedings free from unreasonable delay
8. The right to be treated with fairness and with respect for the victim’s
dignity and privacy
See 18 U.S.C. § 3771(a), (c)(1); AG Guidelines, arts. V.C-V.J. Apart from these
enumerated rights, the prosecutor has an independent obligation under the
Act to advise the victim of his or her right to counsel in connection with the
rights established by the Act. See 18 U.S.C. § 3771(c)(2); AG Guidelines, art.
V.B.2.
The Act also creates several enforcement mechanisms. If the government or
a victim believes the victim’s rights are being violated, relief is possible by way
of motion in the trial court and ultimately a petition for writ of mandamus
in the Court of Appeals. See 18 U.S.C. § 3771(d)(3); AG Guidelines, art. V.K.
If the victim’s rights are violated, the Act does not permit a motion for a new
trial, but does provide for re-opening a plea or sentence. 18 U.S.C. § 3771(d)
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(5). Finally, although the Act does not authorize suits against government
personnel, it requires the Department to create an administrative authority
within the Department to receive and investigate complaints, and impose
disciplinary sanctions for willful or wanton non-compliance. See 18 U.S.C.
§ 3771(f )(2); AG Guidelines, art. V.B.4; 28 C.F.R. § 45.10 (2005).
For purposes of enforcing these rights, the Justice for All Act defines a
victim as “a person directly and proximately harmed as a result of the commission
of a Federal offense or an offense in the District of Columbia.” See 18 U.S.C.
§ 3771(e) (emphasis added); see also AG Guidelines, art. III.C.1. A victim may be
an individual, a corporation, company, association, firm, partnership, society,
or joint stock company. See 1 U.S.C. § 1 (defining “person”); AG Guidelines,
art. III.C.2. In considering whom to classify as a victim, prosecutors may
consider whether those who were injured during the commission of a federal
crime were indeed “directly and proximately harmed” by the offense within the
meaning of 18 U.S.C. § 3771(e), particularly in cases where there are hundreds
or even thousands of potential victims.
The Act also contains a section on “Multiple Crime Victims” to address
notification in cases involving large numbers of victims. This provision, which
is of particular interest in cases involving the large-scale distribution of pirated
or counterfeit goods, states:
In a case where the court finds that the number of crime victims
makes it impracticable to accord all of the crime victims the
rights described in subsection (a), the court shall fashion a
reasonable procedure to give effect to this chapter that does not
unduly complicate or prolong the proceedings.
18 U.S.C. § 3771(d)(2); see also AG Guidelines, arts. III.K, V.D.2, V.E.4. For
instance, in an online piracy prosecution with hundreds or thousands of victims
from different content industries, it is often impractical for a prosecutor to
notify every rights holder. In such cases, the prosecutor should consider, at a
minimum, notifying and enlisting the assistance of any trade organizations
that represent multiple victim rights holders. The prosecutor could then seek
court approval for an alternative procedure authorizing him or her to notify
such representatives in lieu of notifying all rights holders.
The Act states that “[n]othing in this chapter shall be construed to impair
the prosecutorial discretion of the Attorney General or any officer under his
direction.” 18 U.S.C. § 3771(d)(6). Congress clearly did not intend the Act
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to be implemented in a way that hinders prosecutorial discretion in addressing
issues of victims’ rights and notification.
The Act did not alter other provisions that protect victimized rights
holders. In all criminal prosecutions, a pre-sentence report must contain
verified information containing an assessment of the impact on any individual
against whom the offense has been committed. Fed. R. Crim. P. 32(d)(2)(B).
Additionally, most intellectual property statutes guarantee victims (including
producers and sellers of legitimate works, rights holders, and their legal
representatives) the right to submit a victim impact statement identifying
the extent and scope of their injury and loss prior to sentencing. See 18
U.S.C. §§ 2319(e), 2319A(d), 2319B(e), 2320(e).

B.

The Victim’s Role in the Criminal Prosecution

The fact that victims of IP crime have access to civil remedies raises several
issues during criminal prosecution.
1. Reporting an Intellectual Property Crime
It is recommended that victims of intellectual property crimes document
all investigative steps, preserve evidence, and contact law enforcement as soon
as possible. Victims can report intellectual property crimes to appropriate
law enforcement agencies as described in the referral guidelines contained in
Appendix H of this Manual.
2. Ethical Concerns When the Criminal Prosecution Results in an
Advantage in a Civil Matter
Like other crime victims, IP rights holders are often interested in securing
economic and other relief, but, unlike other types of crime victims, rights
holders have strong civil enforcement tools and resources that they often
use to aggressively pursue civil remedies. Prosecutors are obligated by statute
and policy to assist victims in obtaining restitution and other remedies, but
prosecutors are also obligated to serve the public interest. Occasionally, those
interests may be in tension. In this regard, prosecutors should consider whether
or to what extent IP victims are using the threat of criminal prosecution to
advance their private interests and to what extent the government can offer
a defendant concessions in prosecution or sentencing in exchange for the
defendant’s agreement to compensate the victim or mitigate the harm the
defendant has caused.
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a. Victims Who Seek Advantage by Threats of Criminal Prosecution
It is commonplace for an IP-owner’s attorney to send a merchant a letter
directing him to cease and desist sales of infringing merchandise. If the merchant
continues to infringe, the letter will be solid evidence of the defendant’s mens
rea during any ensuing criminal case.
Sometimes the IP-owner’s letter will include an express or implied threat
to seek criminal prosecution should the merchant persist. The extent to which
it is ethically permissible for a lawyer to threaten to press criminal charges as
a means to advance a civil cause of action is unclear. The lack of clarity stems
in part from a patchwork of inconsistent ethical rules. The ABA’s Model Code
of Professional Responsibility (adopted in 1969, amended in 1980) explicitly
prohibited strategic threats of prosecution: “A lawyer shall not present,
participate in presenting, or threaten to present criminal charges solely to
obtain an advantage in a civil matter.” Model Code of Prof'l Responsibility DR
7-105A (1980). The ABA's Model Rules of Professional Conduct, adopted in
1983, omitted the rule as “redundant or overbroad or both.” See ABA Comm.
on Ethics & Prof ’l Responsibility, Formal Ethics Op. 92-363 (1992) (allowing
a lawyer to use a threat of a criminal referral to obtain advantage if the civil claim
and criminal matter are related and well-founded). Not all states have dropped
the old rule, and some have adopted other specific provisions addressing the
issue. Compare Office of Disciplinary Counsel v. King, 617 N.E.2d 676, 677
(Ohio 1993) (disciplining a lawyer under the old rule for threatening to seek
prosecution unless opponent in property dispute paid disputed rent or vacated
the property), with Or. Rules of Prof ’l Conduct r. 3.4(g) (Or. State Bar 2005)
(prohibiting such threats “unless the lawyer reasonably believes the charge to
be true and if the purpose of the lawyer is to compel or induce the person
threatened to take reasonable action to make good the wrong which is the
subject of the charge”).
Whatever the implication for the victim's lawyer, there is nothing unethical
about the government's decision to prosecute the offender after such a threat
has been made. The victim's threat does not present a legal or ethical obstacle
for the prosecution. Instead, the concern for the government prosecutor is a
strategic one, to the extent that the threat reflects on the victim's credibility
or willingness to manipulate the criminal justice system for private gain. The
victim's conduct in this regard is one factor among many to be considered in
deciding whether to prosecute.

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b. Global Settlement Negotiations
Ethical questions arise when the prosecution, victim, and defendant
attempt to resolve all pending civil and criminal disputes in a global settlement
agreement. While the answers to these questions are not entirely clear, there are
some best practices that follow the guidelines cited above, Department policy,
and strategic concerns.
First, it is often the better practice for the prosecutor to defer to the other
parties to suggest a global disposition rather than be the first to suggest it. By
adopting this approach, the prosecutor is less likely to create the appearance of
overreaching:
[T]he government can neither be, nor seem to be, trading
money for relief or insulation from criminal prosecution or
sentencing consequences. Such a trade-off not only would
undermine the integrity of the prosecutorial process, but also
raises formidable fairness concerns, with wealthy defendants
better able to reach global settlements than poor ones.
***
Many prudent Assistant United States Attorneys consider global
settlements to have an appropriate and ethical role in resolving
parallel proceedings, but follow a rule of not introducing or
suggesting such a disposition. If opposing counsel raise[s] the
issue, it may be responded to and pursued by government
attorneys in close consultation with supervisors, and mindful
of the ethics issues.
Office of Legal Education, U.S. Dep’t of Justice, Federal Grand Jury Practice
§ 12.12 (2008) (concerning parallel proceedings and global settlements).
Second, it is the better practice to limit the negotiations to matters of
criminal law. For example, as discussed in Section B.3.a. of this Chapter,
although some civil remedies will award a victim of IP theft with treble damages,
treble damages cannot be awarded under the criminal restitution statutes. See
18 U.S.C. § 3663(b), 3663A(b), 3664(f )(1)(A). See also Chapter VIII, Section
D.3. of this Manual for a discussion of how to determine restitution measures).
However, the criminal statutes permit restitution to be ordered “to the extent
agreed to by the parties,” 18 U.S.C. § 3663(a)(3), and allow for the defendant
to provide services in lieu of money, 18 U.S.C. §§ 3663(b)(5), 3664(f )(4)
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(C). Therefore, it is perfectly appropriate for the government to require full
restitution as a condition of a plea agreement. See Chapter VIII, Sections D.1..2. of this Manual.
Clearly, the government may not use the threat of unsupported charges
to obtain advantage for a civil plaintiff. Model Rule of Professional Conduct
3.8 prohibits a prosecutor from seeking charges that the prosecutor knows are
not supported by probable cause, and Rule 3.1 prohibits any advocate from
asserting frivolous claims. Rule 4.1 requires a lawyer to be truthful. Even a
well-founded threat of criminal prosecution may be unethical if intended
merely to “embarrass, delay or burden a third person.” Model Rules of Prof ’l
Conduct R. 4.4 (2003).
Finally, there are strategic concerns. A judge or jury might react negatively
if the victim or prosecutor appears to be threatening more serious consequences
in the criminal case as leverage in the civil disposition. Although the prosecutor
must at all times keep the victim informed of the progress of the criminal
case, including discussion of a plea offer (see Section A. of this Chapter), it is
ultimately the prosecutor who must decide how, if at all, to attempt to resolve
a criminal case, including all issues of restitution to the victim.
3. Parallel Civil Suits
The civil and regulatory laws of the United States frequently
overlap with the criminal laws, creating the possibility of
parallel civil and criminal proceedings, either successive or
simultaneous. In the absence of substantial prejudice to the
rights of the parties involved, such parallel proceedings are
unobjectionable under our jurisprudence.
Sec. & Exch. Comm’n v. Dresser Indus., Inc., 628 F.2d 1368, 1374 (D.C. Cir.
1980) (en banc) (footnote omitted). The topic of parallel civil suits is complex
and largely beyond the scope of this Manual. For a more extensive discussion
of parallel proceedings, see Office of Legal Education, U.S. Dep’t of Justice,
Federal Grand Jury Practice § 12 (2008). The following is a brief summary.
a. Private Civil Remedies
Victims of IP crimes have significant civil enforcement mechanisms
and remedies against infringers. In civil actions, IP rights holders can
recover damages, the defendant’s profits, costs, attorney fees, and even
statutory damages, which can be punitive or quasi-punitive. See 15 U.S.C.
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§ 1117 (trademark infringement damages); 17 U.S.C. §§ 504 (copyright
infringement), 505 (same), 1101 (bootlegged recordings of live musical
performances), 1203 (DMCA); 18 U.S.C. § 2318(e) (illicit labels and
counterfeit labels, documentation, and packaging for copyrighted works); see
also Getty Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10, 13-14 (2d Cir.
1988) (holding punitive damages unavailable for federal trademark claims, but
may be available for state infringement and unfair competition claims). Civil
remedies also include injunctive relief against future infringement and seizure
or impoundment of infringing goods. 15 U.S.C. §§ 1116, 1118 (trademark);
17 U.S.C. §§ 502 (copyright), 503 (same), 1101 (bootlegged recordings of
live musical performances), 1203(b) (DMCA); 18 U.S.C. § 2318(e)(2)(A),
(B) (illicit labels and counterfeit labels, documentation, and packaging for
copyrighted works); see also Chanel Inc. v. Gordashevsky, 558 F. Supp. 2d. 532,
539-40 (D.N.J. 2008) (granting permanent injunction preventing defendant
from engaging in future infringing conduct and transfer of infringing domain
names to plaintiff).
Victims of trademark or copyright infringement can also seek the private
counterpart of a search warrant: an ex parte seizure order, executed by law
enforcement. 15 U.S.C. § 1116(d) (trademark); 17 U.S.C. § 503 (copyright);
see Columbia Pictures Indus., Inc. v. Jasso, 927 F. Supp. 1075-77 (N.D. Ill.
1996) (sealed writ of seizure issued for pirated videos); Time Warner Entm’t
Co. v. Does Nos. 1-2, 876 F. Supp. 407, 410-15 (E.D.N.Y. 1994) (recognizing
availability of seizure order for infringing goods, but denying the victims’ ex
parte request on Fourth Amendment grounds because it called for execution
by private investigators and failed to describe the locations to be searched with
particularity). A party seeking civil seizure of goods with counterfeit marks must
first notify the United States Attorney to allow the government’s intervention
should the seizure affect the public interest in a criminal prosecution. 15 U.S.C.
§ 1116(d)(2).
Prosecutors should consider the availability and use of private civil remedies
in deciding whether to prosecute an infringer criminally. See Chapter IX,
Section D. of this Manual.
b. Advantages and Disadvantages of Parallel Civil and Criminal
Proceedings
If the government prosecutes a defendant who is also a party to a pending
civil case, the parallel proceedings raise their own set of issues:
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•
•

•
•

•

•
•
•

Advantages
The victim’s private civil enforcement action brings additional statutory
and equitable remedies to bear on a defendant.
The victim’s allocation of resources to the investigation may conserve
government resources. Moreover, as discussed in Section C. of this
Chapter, the victim’s independent reasons for providing resources
to advance the civil case may lessen the appearance of any potential
conflict of interest.
In the civil case, the plaintiff victim can compel discovery, which the
prosecution can use and discuss with the victim without grand jury
secrecy or operational concerns.
A civil case presents the defendant with a difficult Fifth Amendment
choice. If he submits to discovery, he may lock in his story, provide
leads, disclose strategy, or furnish false exculpatory statements, all of
which may assist the criminal prosecutor. If he asserts his privilege
against self-incrimination in the civil matter, however, the jury in the
civil case can be instructed that it may draw an adverse inference from
his silence. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 318-19 (1976)
(adverse inference from silence permissible in prison disciplinary
proceedings); Hinojosa v. Butler, 547 F.3d 285, 291-95 (5th Cir. 2008);
ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179 (4th Cir. 2002) (adverse
inference permissible in civil RICO fraud case); LaSalle Bank Lake
View v. Seguban, 54 F.3d 387, 390-91 (7th Cir. 1995) (same).
A criminal conviction typically ends the civil case in the victim’s favor,
either because the victim can rely on the criminal court’s restitution
order, collateral estoppel conclusively establishes the defendant’s
wrongdoing in the civil case, or the conviction simply renders the
defendant less willing to contest the civil case.
Disadvantages
Given the availability of private, civil enforcement mechanisms, the
court may view the criminal prosecution as a waste of judicial resources.
The government loses control of a component of the investigation.
Actions taken by private counsel and investigators for the civil case
may not be in the criminal case’s best interests.
If the grand jury is used to gather evidence, secrecy concerns may
require criminal investigators to withhold material information from
the parties to the civil proceeding, although collecting evidence outside

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•

the grand jury, such as through search warrants or administrative
subpoenas, may allow the government to share information without
breaching grand jury secrecy.
The defendant can compel discovery in the civil case, which may
generate inconsistent witness statements and provide insight into the
prosecution’s case. As a result, some prosecutors will seek to stay the
civil case while the criminal case proceeds.
c. Stays and Protective Orders to Delay Civil Proceedings During
Criminal Prosecution

If the disadvantages of parallel proceedings outweigh the advantages, the
government may seek a protective order or a stay of the civil proceedings. There
is ample authority for issuing a stay or protective order, especially when liberal
civil discovery would allow a criminal target or defendant to interfere with the
investigation or bypass restrictions on criminal discovery. See, e.g., Degen v.
United States, 517 U.S. 820, 825-26 (1996) (holding that a stay may be sought
in parallel civil forfeiture action); United States v. Stewart, 872 F.2d 957, 96163 (10th Cir. 1989) (holding that a court handling a criminal case may have
authority under Fed. R. Crim. P. 16(d) or 18 U.S.C. § 1514(a) to prevent
parties in a parallel civil case from abusing witnesses or discovery procedures);
Sec. & Exch. Comm’n v. Dresser Indus., 628 F.2d 1368, 1376 n.20 (D.C. Cir.
1980) (en banc) (noting that the government may seek postponement of the
noncriminal proceeding to prevent the criminal defendant from broadening
his rights of criminal discovery against the government); Campbell v. Eastland,
307 F.2d 478, 490 (5th Cir. 1962) (holding that the public interest in criminal
prosecution with limited discovery outweighed civil litigant’s right to prepare
case promptly); see also Office of Legal Education, U.S. Dep’t of Justice, Federal
Grand Jury Practice §§ 12.9,12.10 (2008).
When seeking a stay or protective order, the government should be
prepared to address the following factors: (1) the extent to which issues in the
criminal case overlap with those presented in the civil case; (2) the status of
the criminal matter, especially whether the civil defendant has been indicted;
(3) the interest of the plaintiff in proceeding expeditiously, as weighed against
the prejudice caused by the delay; (4) the private interests of and burden on
the defendant; (5) the interest of the court in case management and judicial
resources; (6) the interest of non-parties; and (7) the public interest. See, e.g.,
Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 99-100 (2d Cir.
2012); Microfinancial, Inc. v. Premier Holidays Int’l, Inc., 385 F.3d 72, 78 (1st
396

Prosecuting Intellectual Property Crimes

Cir. 2004); Keating v. Office of Thrift Supervision, 45 F.3d 322, 324-25 (9th
Cir. 1995); Eastwood v. United States, No. 2:06-cv-164, 2008 U.S. Dist. LEXIS
106777, *9 (E.D. Tenn. Nov. 14, 2008); Chao v. Fleming, 498 F. Supp. 2d 1034,
1037 (W.D. Mich. 2007); Benevolence Int’l Found. v. Ashcroft, 200 F. Supp. 2d
935, 938 (N.D. Ill. 2002); Trustees of the Plumbers and Pipefitters Nat’l Pension
Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995).

C.

Offers of Assistance From Victims
and Related Parties

IP rights holders frequently offer to provide resources to assist the
government with criminal investigations. Traditionally, law enforcement
agencies have routinely accepted assistance from victims and citizens willing
to do so in discharge of their civic duty. However, offers of assistance in
investigations and litigation have increased in scope, variety, and monetary
value. Consequently, at the prompting of the Department of Justice’s Task
Force on Intellectual Property, the Deputy Attorney General issued a May
2006 memorandum to all United States Attorneys and component heads
on accepting resources from victims, related parties, and third parties for use
in investigations and prosecutions. A copy of the memorandum, entitled
Guidance for Acceptance of Assistance and Gifts from Private Parties for Use in
Connection with Investigations and Litigation, may be found at http://www.
justice.gov/dag/readingroom/dag-may262006.pdf.
Although this subsection tracks the Department’s guidance closely and
highlights certain issues, the reader is advised to refer to the memorandum
itself before deciding on an appropriate response to an offer of resources.
The reader should also refer to Appendix J of this Manual, which examines a
variety of hypothetical offers of resources, such as private investigators offering
information; victims offering meeting space, expert witnesses, purchase money
to obtain counterfeit items, and storage space for seized items; and unrelated
parties offering forensic tools and analysis, facilities from which to conduct an
investigation, and expert witness services.
An offer of donated resources generally raises three issues. First is whether
the donation of resources is permitted by laws, regulations, and Department
directives limiting the acceptance of gifts. This will usually turn on whether the
offered resources constitute a gift or the type of assistance traditionally provided
by victims of crime, their related parties, and third parties. Second, is whether
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the assistance is permitted by the rules of professional conduct regardless of
whether the offered resources are considered to be gifts or assistance. And third,
is whether the assistance will have an adverse impact on the prosecution, even
if permissible under gift restrictions and rules of professional conduct. All three
issues are addressed below.
1. Gift Issues
a. Applicable Law
The Attorney General has authority to “accept, hold, administer, and use
gifts, devises, and bequests of any property or services for the purpose of aiding
or facilitating the work of the Department of Justice.” 28 U.S.C. § 524(d)(1).
Gifts of money (including money derived from property) must be deposited in
the Treasury for the benefit of the Department and may be distributed by order
of the Attorney General. 28 U.S.C. § 524(d)(2).
In 1997, the Attorney General issued Department of Justice (“DOJ”)
Order 2400.2, available at http://www.justice.gov/jmd/ethics/docs/doj-24002.htm, which “sets forth the Department's policies and procedures regarding
the solicitation and acceptance of gifts, devises and bequests of property of
all kinds.” The Order states that no Departmental employee may solicit a gift
unless he or she has obtained the prior approval of the Attorney General or the
Deputy Attorney General. DOJ Order 2400.2 ¶ 3.a.(1). Solicitations are rare
and approved in only extraordinary circumstances.
In addition, the Assistant Attorney General for Administration (AAG/A)
has the exclusive authority to accept “gifts made to the Department” or any
of the Department’s components. Id. ¶ 3.b.(1). Before accepting any gift,
the AAG/A must consider whether: (1) the gift is appropriate for use; (2) the
conditions the donor has placed on acceptance or use, if any, are “acceptable;”
(3) any employee solicited the gift, and if so, whether approval was obtained;
and (4) whether acceptance is “appropriate and advisable,” in light of conflictof-interest and ethics guidelines, including whether acceptance would “create
the appearance of impropriety.” Id. ¶ 3.b.(2).
The AAG/A has delegated to component heads the authority to determine
whether to accept certain case-specific gifts from private parties in criminal
and civil investigations, prosecutions, and civil litigation that have a value of
$50,000 or less. The component head for U.S. Attorneys' Offices is the Director
of the Executive Office for United States Attorneys. The component head may
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accept the first offer from a source up to $50,000. A second or subsequent offer
in the same fiscal year from the same source must be submitted to the AAG/A
for approval when the value combined with the first gift exceeds $50,000.
Gifts that are not case-specific, gifts of cash, gifts valued above $50,000, and
extraordinary case-specific gifts continue to require approval by the AAG/A.
b. Distinction Between “Assistance” and “Gifts”
Historically, the Department has distinguished a gift from traditional
forms of assistance provided by citizens during a criminal or civil investigation,
prosecution, or civil litigation. Matters that constitute “assistance” are not gifts
and, accordingly, are not subject to the procedures applicable to gifts. If the
offered resource constitutes assistance, it may be accepted without approval,
but if it is a gift, it cannot be accepted without obtaining approval as described
later in this Chapter.
Law enforcement agencies routinely receive wide-ranging aid from
private parties in the investigation and prosecution of federal crimes. Such
aid has played an important and accepted role in the criminal process. See,
e.g., Commonwealth v. Ellis, 708 N.E.2d 644, 651 (Mass. 1999) (“It is in the
public interest that victims and others expend their time, efforts, and resources
to aid public prosecutors.”); see also Wilson v. Layne, 526 U.S. 603, 611-12
(1999) (noting that the use of third parties during the execution of a warrant
to identify stolen property “has long been approved by this Court and our
common‑law tradition”). Victims and other private parties are often in a
unique position to provide information and other aid in an investigation and
litigation. Such private cooperation not only is desirable, but often is critical to
law enforcement and the government's mission. In this vein, the vast majority
of case-specific aid from private parties, particularly from victims and related
parties, constitutes assistance and is not a gift.
A victim provides assistance when it offers services, equipment, or logistical
support that enhances the efficiency of the government’s efforts in relation to a
case. Apart from cost savings, an offer of assistance enhances the Department’s
efficiency when the offer gives an added benefit that is unique because of the
victim or related party’s involvement. Assistance generally will be distinguishable
in some way from what the Department could obtain through commercial
obligations. For example, use of a victim company’s office space to conduct
interviews of witnesses constitutes assistance since that location provides
accessibility to staff that would not be possible in a hotel or other location.
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On the other hand, a victim company’s offer to Departmental employees of
its fleet of cars for local transportation, even if made in the course of a case,
provides only a convenience that is no different from what the Department
would obtain on the commercial rental market, and should not be accepted.
i. Assistance from Victims and Related Parties
Aid provided by a victim will generally be classified as assistance, rather
than a gift. Examples of actions that constitute assistance when provided by a
victim include:
• Providing factual or expert information in an investigation, or fact or
expert testimony at trial
• Turning over the fruits of a